Francisco Illarramendi, 45 and formerly of New Canaan, was sentenced recently in Bridgeport to 13 years in prison, plus an additional three years of supervised release, for running a Ponzi scheme.
Judge Stefan Underhill of U.S. District Court in Bridgeport presided.
The U.S. government had accused Illarramendi of orchestrating a Ponzi scheme that defrauded investors and creditors of hedge funds he managed out of hundreds of millions of dollars, and for obstructing the ensuing investigation of his conduct.
According to the FBI, Illarramendi pleaded guilty in January to two counts of wire fraud, one count of securities fraud, one count of investment adviser fraud, one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the U.S. Securities and Exchange Commission.
“For more than five years, Francisco Illarramendi’s severely misguided attempt to conceal an initial loss of $5 million ballooned into an elaborate fraud scheme that caused investors and creditors to lose hundreds of millions of dollars,” First Assistant U.S. Attorney Michael J. Gustafson said in a statement. “Through it all, he still managed to live well, receiving more than $20 million in personal benefits.”
“Mr. Illarramendi violated his fiduciary duties by swindling millions from investors,” said Patricia Ferrick, special agent in charge of the New Haven division of the FBI. “This case sends a clear message that no one is above the law, least of all those in the securities industry.”
In late 2005, a hedge fund Illarramendi advised while working in Stamford lost some $5 million of the money he was charged with investing. Rather than disclose to his investors the truth about the losses, he concealed the information by engaging in a scheme to defraud and mislead his investors and creditors, according to the U.S. attorney’s office. As a result of the scheme, the hedge funds and related entities managed and advised by Illarramendi had outstanding liabilities that greatly exceed the true value of their assets, causing the funds’ investors, creditors and service providers to lose more than $700 million.
Illarramendi created fraudulent documents, including a bogus debt instrument and a phony letter purported to have been issued by an investment bank. He also paid $3.4 million in bribes to two officials of the Venezuelan state-owned oil company, Petroleos de Venezuela SA, and paid a Venezuelan accountant and a purported Florida businessman $1.25 million to assist in his scheme, prosecutors said.
Illarramendi personally obtained more than $20 million during the course of the scheme, and used approximately $5 million of the funds to construct a home in New Canaan.
To date, the court-appointed receiver has recovered more than $300 million of the funds that were lost, including a majority of the bribe payments. The receiver also has sold Illarramendi’s New Canaan residence for approximately $3 million.
Underhill will issue a restitution order after further court proceedings.
Illarramendi has been detained since Jan. 25, 2013.