Courts: Pawleys man arrested for securities fraud
A Pawleys Island area man was arrested Wednesday following his indictment by a federal grand jury in Atlanta for securities fraud, according to the FBI. Stanley J. Kowalewski is accused of defrauding hedge fund investors of up to $8 million and for obstructing the U.S. Securities and Exchange Commission investigation of his activities.
“Kowalewski is charged with stealing from the investors who trusted him and then repeatedly lying to them and the SEC about his self-dealing,” U.S. Attorney Sally Quillian Yates said in a statement. “The victims of his greed include pension funds, schools, hospitals, and other non-profits who lost over $8 million in hard-earned money, which Kowalewski diverted to his own personal use.”
A former Greensboro, N.C., resident, Kowalewski moved to Pawleys Island in 2011. He has been a volunteer basketball coach for Waccamaw Middle School and started a youth basketball program. The Atlanta Division Office of the SEC had already brought a civil action against Kowalewski in which he was ordered to pay over $16 million in disgorgement and civil penalties.
According to Yates, the charges, and other information presented in court, Kowalewski was the sole owner and chief executive officer of SJK Investment Management LLC in Greensboro. Beginning in 2009, Kowalewski solicited investment money from pension funds, school endowments, hospitals, non-profit foundations, and other investors that he placed in two SJK “hedge fund of funds,” an onshore fund and an offshore fund called the Absolute Return Funds. Almost immediately after receiving the first investor money, Kowalewski began diverting the proceeds to pay for personal and business overhead expenses.
In December 2009, Kowalewski formed a new SJK fund called the Special Opportunities Fund, which he did not disclose to investors. He diverted millions from the Absolute Return Funds to the Special Opportunities Fund without disclosing the transfers to investors. After he secretly transferred the funds, Kowalewski diverted millions from the Special Opportunities Fund to himself through various self-dealing transactions, including having the Special Opportunities Fund buy three homes that Kowalewski owned and in which his family, his parents, and his brother-in-law’s family lived. Kowalewski also bought a multi-million-dollar beach house at Pawleys Island and directed that the Special Opportunities Fund pay him $4 million as a fee to which he was not entitled. Kowalewski created and altered documents in an effort to make these transactions appear legitimate, according to the FBI.
Also as part of the scheme, Kowalewski overvalued the assets held by the Special Opportunities Fund and used those fraudulent valuations to calculate the returns for investors in the Absolute Return Funds. As a result, the monthly statements distributed to SJK investors showed fraudulently inflated returns. Investors lost over $8 million, the FBI said.
In March 2010, the SEC initiated a proceeding to determine whether there had been violations of the federal securities laws in connection with SJK. As part of its investigation, the SEC subpoenaed Kowalewski to testify under oath. During his sworn testimony, Kowalewski testified that, after the Special Opportunities Fund had purchased his three homes, the fund had leased the properties to him and his relatives, each for a yearly rental payment. He testified further that Michael J. Fulcher, the chief financial officer of SJK, had drafted and Kowalewski had signed the leases at or near the time of the homes’ sales. But according to the indictment, Kowalewski and his relatives had never leased the homes back from the Special Opportunities Fund. Prior to Kowalewski’s sworn testimony, Kowalewski and Fulcher conspired to obstruct the SEC proceeding by creating the leases and backdating them, in an effort to document the claimed lease relationships and to conceal the self-dealing transactions by Kowalewski, according to the FBI. The leases were not created and signed at the time of the homes’ sales but in November 2010, a few weeks before Kowalewski testified. Prossecutirs allege Kowalewski provided the fraudulent leases to the SEC as part of the investigation and then testified falsely about them to conceal his actions and obstruct the SEC’s investigation.
The indictment also alleges Kowalewski lied in his sworn testimony when he testified that he had disclosed the Special Opportunities Fund to investors and that attorneys and other professionals had approved of his self-dealing transactions.
The indictment charges Kowalewski, 41, with 22 counts of wire fraud, one count of conspiracy, and one count of obstructing the SEC proceeding. Each wire fraud count carries a maximum sentence of 20 years in prison. The conspiracy and obstruction charges each carry a maximum sentence of five years in prison.
Fulcher pleaded guilty in April to one count of conspiring with Kowalewski to obstruct the SEC proceeding, which charge carries a maximum sentence of five years in prison. Each of these charges carries a fine of up to $250,000. Fulcher’s sentencing date has not been scheduled.