On Wednesday, Acting United States Attorney Gregory G. Brooker announced that two men had been charged on multiple counts of wire fraud in connection with a stock trading scheme. 63-year-old Steven Markusen and 58-year-old Jay Cope will make their initial appearances in a United States District Court at a later date.
The indictment explains that Markusen was the sole owner, CEO and managing member of Archer Advisors LLC, which was formed in 2002. Cope was employed by Archer and held various job titles, including managing member, research associate and chief operating officer. His primary duties were investor relations, marketing and operations.
The purpose of Archer was to act as the investment manager for two private hedge funds, Archer Focus Fund LLC and Archer Equity Fund LLC. At one point, the funds had more than $36 million in net assets. The indictment explains that the funds paid Archer Advisors monthly management fees and annual performance fees. Archer was also entitled to reimbursements for eligible expenses incurred by the company.
Payments made by the funds to Archer were made through a third-party administrator. The defendants utilized brokerage firms and certain firms offering a “soft dollar program” to make the trades. The “soft dollar program” is an incentive program in which Archer was credited a percentage of the commission paid by the Funds to the brokerage firms per trade.
Archer could use the commission for the purpose of purchasing third-party research services with the intention of helping the two funds make investment decisions. The indictment suggests that Cope began submitting monthly invoices to Archer in 2008, while claiming he was performing research for the company. Markusen subsequently requested reimbursement from the third-party administrator for Cope’s expenses. The payments were made separately from the other management fees.
Around April of 2009, Archer stopped paying Cope’s fees. Nevertheless, the indictment alleges that Markusen continued to imply to the third-party administrator that Archer paid Cope’s fees and fraudulently requested reimbursements. In actuality, the indictment suggests that the defendants used soft dollars to pay Cope’s research fees.
Between May 2009 and October 2013, soft dollars were used to pay approximately $500,000 in research expenses. More than 80 percent of that went to Cope, according to the indictment. The two defendants are accused of engaging in fraudulent trading activity to ensure the soft dollar accounts were able to cover Cope’s monthly invoices. When the soft dollar balance was in arrears, the indictment alleges that the men began day trading.
It is also alleged that the two defendants engaged in “marking the close” schemes in hopes of artificially inflating the value of the funds. The case is the direct result of an FBI investigation. The case will be prosecuted by Attorneys John E. Kokkinen and Ariella Guardi. 63-year-old Steven Markusen of Minneapolis, Minnesota and 58-year-old Jay Cope of Victoria, Minnesota are innocent until proven guilty.