Florida private equity manager Elliot Smerling used a web of lies to convince multiple banks to extend more than $200 million worth of credit to his investment funds, despite the fact that the funds had virtually no real investors or investments.
He used that money to fund a lavish lifestyle, with a multi-million dollar waterfront mansion in Wellington, Florida, a London apartment in a building overlooking the River Thames and a fleet of luxury cars. And the purported success of his funds — and his financial support — helped Smerling land a spot on the entrepreneurship board at the University of Miami’s business school, where he had earned an MBA.
Smerling’s funds rent office space and hired employees, but prosecutors maintain that it was “nothing more than a front.”
Rather than buying stakes in companies, as Smerling told the banks his funds had done, Smerling himself invested in the market. And he didn’t invest well. Prosecutors said he lost more than $40 million in day trading.
He was sentenced Friday to 8 years and one month in prison after admitting to submitting forged financial audits and forged agreements from investors such as Steve Cohen, the hedge-fund billionaire who owns the New York Mets, and the endowment fund of the University of Miami , to convince the banks to extend credit to one of his funds.
“Elliot Smerling previously admitted to securing funding for his private equity fund by submitting a constellation of fraudulent documents and assurances to lenders,” said Damian Williams, US Atoornwy for the Southern District of New York. “Smerling has now fittingly been sentenced to more than eight years in federal prison for his bank and securities fraud scheme.”
He’s also on the hook for nearly $134 million still owed to Silicon Valley Bank and Citizens Bank and the US Securities and Exchange Commission barred Smerling from association with any investment advisers, stock brokers or other financial professionals.
The Herald spoke last year with more than a dozen of Smerling’s supposed investors who said they had never invested with him. Many had never even heard of him.
Fredrick Guess, a New Orleans painter originally from Florida tabbed by Smerling as having invested $20 million with his funds, told the Herald last year that he had gotten paperwork related to a purported investment in one of Smerling’s funds years ago, but had thrown it in the trash.
“I got a FedEx envelope, I don’t know how long ago it was, saying I needed to wire him $10 million and I said, ‘What kind of scam is that?’ Guess recalled.
Steven Berrard, another purported investor and the former CEO of AutoNation and Blockbuster, told the Herald last year that he had never invested with Smerling and didn’t know anything about him.
“Until a few days ago, I’d never heard of this gentleman,” Berrard said at the time.
As the Herald documented last year, Smerling’s deceit extended beyond the forged documents. He listed employers who said he never worked for them and employees who said they never worked for him.
Smerling told the banks he had worked as the chief investment officer for a predecessor of HGGC, a Silicon Valley-based private equity firm co-founded by NFL Hall-of-Fame quarterback Steve Young. But he had never worked for the firm, the company said, and it had never invested in Smerling’s funds, as he had falsely represented.
Pedro Soares, listed by Smerling in materials submitted to the banks as one of the investment fund’s top employees, told the Herald last year he had never worked for Smerling and hadn’t spoken with him in years.
Smerling created the investment company in the wake of the collapse of Laser Partners, a South Florida private equity firm where Smerling did work as the chief investment officer.
A former colleague at Laser Partners told the Herald last year that Smerling had grand ambitions for his new venture, which he formed around 2013 and dubbed JES Global Capital.
“It’s going to blow Laser out of the water,” the former colleague recalled that Smerling had said at the time.
According to prosecutors, Smerling’s groin began from the start. While he invested $2 million of his own money lined up “modest, six-figure” investments from three Miami area partners, his presentations to investors and potential lenders included false claims about the fund’s committed investors, investments, financial auditor and administration.
Private equity firms typically don’t require investors to pony up all of the cash they pledge to invest up front and often secure so-called subscription lines of credit on the basis of the amounts investors have promised to eventually commit.
Smerling was able to secure an initial $8 million subscription line of credit, but still struggled to find investment opportunities. When his partners asked him to call on the fund’s purported investors to kick in the cash they had promised so the fund had more money to invest, Smerling repaid the partners and the loan rather than admit that the other investors were made up, thus establishing the “template for [Smerling’s] fraudulent business practices that would persist until February 2021,” prosecutors wrote.
Tracing the money trail
James Feltman, a receiver appointed by the court, is now picking through Smerling’s assets to recover as much of the stolen money as possible to return to the swindled banks. So far, Feltman has recovered a little more than $16 million, according to a letter filed on Feltman’s behalf ahead of Smerling’s sentencing.
The Wellington mansion and 20 acres around it sold for more than $6 million, but the London apartment remains unsold. The luxury fleet of cars, which included a Ferrari, Porsche Corvette and a 1970 Chevrolet Chevelle, among others, fetched just over $800,000. Rolex and Hermès watches brought in another $9,000, though the ownership of a Vacheron Constantin watch is in dispute.
Smerling poured more than $1.6 million into college funds for his two daughters and more than $840,000 into college funds for his niece and nephew. While Smerling has pushed back against turning over the full balance of his daughters’ accounts, the funds for his niece and nephew — created without their knowledge — were recovered. Smerling also made millions in loans to entities connected to employees and old friends, largely unpaid at the time of his arrest. So far, the majority are still outstanding.
But mysteries remain about where all the money went. Companies linked to Smerling hold three bank accounts in Switzerland, which are connected to two offshore trusts Smerling established in the Cook Islands, a series of islands in the South Pacific associated with New Zealand. One of the Swiss accounts reportedly holds more than $3.6 million, according to Feltman, though it’s not clear how much is in the others.
Feltman estimates that roughly $25 to $30 million remains unaccounted for, but figuring out where the money went is made more difficult by the fact that the computers from Smerling’s company went missing and most of the e-mails from the company’s servers are gone.
Smerling’s lawyers had requested a sentence below eight years and one month, which was the minimum sentence suggested by federal sentencing guidelines, citing his cooperation with prosecutors, the SEC and the court-appointed receiver, as well as the fact that Smerling has been in federal custody since February 2021, during which time he caught COVID-19.
Prosecutors argued, however, that while Smerling was “forthcoming,” his cooperation didn’t rise to the level of “substantial assistance” that would suggest he deserves a sentence than the recommended sentencing range. They highlighted a letter filed on behalf of the receiver indicating that Smerling’s cooperation had been somewhat limited and pointed to the severity of the crime.
“The offense was extraordinarily serious,” prosecutors wrote. “It was brazen, sophisticated, and of long duration.”