Nilsa Algarin Nieves and her attorney, Craig Kuglar, look over documents involving a hedge fund under scrutiny from federal authorities. Nieves and her husband, Edgard Nieves, have filed a lawsuit against the fund and its managers, saying investors had suffered millions of dollars in damages.

Feds probing Atlanta fund that said some investors couldn’t lose money

Editor’s note: This story has been changed to make clear that Opus Fund Services USA was a third-party administrator to the hedge fund. 

Over a decade, Joseph Meyer’s hedge fund reportedly ballooned to more than $250 million in assets as dozens of Atlanta families poured their dreams into his investment strategy.

They couldn’t lose money, he told investors, a close-knit group of Atlanta’s elite Indian community.

Atlanta families allowed into the group were business partners and personal friends of Meyer and his wife, Nija Majmudar, the daughter of a prominent Atlanta physician and professor at Emory University School of Medicine. The investors enjoyed dinner parties at the Meyers’ home in College Park; attended the birthday celebrations of each other’s children; took out-of-state trips together.

Then late last year, federal regulators accused Meyer and his investment advisory firm, Statim Holdings, of hatching a plan to defraud dozens of families. The Securities and Exchange Commission said Meyer deceived investors about profits and even how much money he managed, while tapping the fund to enrich himself. (Read the SEC complaint here.)

There were red flags that experts say might have alerted investors to be wary, such as the stellar returns Meyers’ fund reported earning in years that other investments faltered.

But any doubts apparently were outweighed by the trust the investors had in the couple — and the love they had for Majmudar, some investors said. Nilsa Algarin Nieves said she felt an instant connection with her when she was introduced to the couple in 2005. “As women, we all want to be like Nija.”

Now, investors are demanding answers. In late January, Nieves and her husband, Edgard Nieves, filed a proposed class-action lawsuit that alleged a breach of fiduciary duty by Meyer, his father-in-law, Dr. Bhagirath Majmudar, Statim Holdings and Opus Fund Services USA LLC, the third party administrator of the hedge fund Meyer operated, known as Arjun LP.

“I felt so betrayed,’’ Nilsa Nieves said.

Meyer, through his attorney, declined an interview request from The Atlanta Journal-Constitution. His attorney for the SEC complaint, Steve Sadow, wrote in an email that Meyer adamantly denied the allegations.

Meyer’s primary goal, Sadow said, had been to make money for investors. He employed outside accountants, independent traders and others to make sure that happened.

“The fund is 100% solvent,’’ Sadow wrote, “and is operated in compliance with a limited partnership agreement and a confidential private placement memorandum agreed to by each limited partner investor.”

Later, in a phone interview, Sadow said that investors who were promised no losses have not lost a single nickel.

“All the money reported by third parties including the fund administrator and the accountant in fact is in the accounts of the limited partners invested in Arjun,” he said.

Meyer’s response to the SEC complaint is due March 5.

Fast results

As early as 2007, when the hedge fund was created, Meyer reported rates of return that far exceeded any notable benchmarks. One document that Meyer gave to investors showed Arjun in May 2007 posting an average 49.86% annual return while the S&P 500 had gained less than 14%.

The stellar performance caught the attention of the investment community.

In 2015, Bloomberg News ranked Arjun eighth among hedge funds with between $250 million and $1 billion in assets. Other services that track hedge funds also named Meyer’s among the best performing. He attributed the success to a computerized system he developed.

But that same year, then-Secretary of State Brian Kemp told Bloomberg News that his office was investigating “multiple irregularities” involving Statim and Arjun. In 2016, Bloomberg posed questions about the fund’s performance and in 2017 reported that the SEC was investigating.

When some investors started to question the fund’s operations, Meyer tried to quell their fears in an April 2017 newsletter.

“They continue to be perplexed by how a small hedge fund in Atlanta, Georgia can achieve such solid annual returns when other hedge funds are unable to do the same,’’ he wrote in the newsletter, which was part of the court documents filed by the SEC.

“I am grateful to you, our investors, for your support throughout this negative publicity,’’ he wrote, “and am pleased to inform you that we are actually net plus in number of investors as well as in AUM (assets under management), both for 2016 and 2017 to date.”

At the time, he also took the opportunity to inform a special group of investors, which included Nieves, that their investments had another solid year of performance, with a 9.3% return.

“We are, as always, here to serve you and support your financial portfolio growth, and to allow you the ability to better provide for the safety and comfort of your family,” he wrote in the newsletter.

Red Flags

Years earlier, Nieves said she had been thinking about exiting the fund. But her friendship with Meyer’s wife and a mutual best friend who also was an investor made her reluctant.

“The main reason I stayed was because of personal issues,’’ she said. “And to be honest, I was always afraid to deal with Joe. He was very intimidating.”

The financial reports she received each month had few details about investment strategy or performance. When she’d ask for more information, Nieves said Meyer would become belligerent.

Investment experts emphasized that it’s not uncommon for hedge funds to keep information proprietary. Hedge funds are not subject to some of the regulations and disclosure rules that are designed to protect most other investors, said Robert R. Johnson, a finance professor at Creighton University in Omaha.

But experts say such secrecy can also shroud fraud.

And, over time, Nieves said her doubts grew.

She said she noticed the Meyers’ living more luxuriously. Their teen-aged son drove a Tesla, she said. They took frequent trips to places like Monaco, China and India. She was told that Meyer had inherited money from his late father.

Nieves also noted that couples who decided to pull out their money never returned to the circle of friends, and later told Nieves that they were not allowed back.

“They just vanished,’’ she said.

The Nieves wondered: Was the some $500,000 they had entrusted to Meyer safe?

Too good to be true

The Nieves were among a class of investors that were told that they would incur no losses. In exchange, they and other investors had to agree to relinquishing a substantial portion of their profits and a 10-year lock-down period, or risk losing half of their investment.

A no-loss guarantee is one red flag that experts say is probably one that investors need to heed the most.

“There’s a simple adage that is very true — especially when investing — and that is that if something sounds too good to be true, it usually is,’’ said J. Cannon Carr, an investment professional at CornerCap Investment Counsel in Atlanta.

In the SEC complaint, filed Dec. 26, the 10-year lock-in requirement was labeled by regulators as “fraudulent conduct,” because it used “deceptive means” to discourage investors from redeeming their investments.

Meyer, the SEC claims, also borrowed from the fund for his personal use, using complex transactions to mask the loans.

The investors’ lawsuit accuses Meyer of using his father-in-law’s bank account as part of a scheme to conceal information.

Atlanta attorney Todd Robinson, who is representing the father-in-law, Dr. Bhagirath Majmudar, said his client vehemently denied the allegations. Robinson declined further comment.

Meyer’s attorney for the investors’ suit could not be reached for comment.

Meyer’s wife, Nija Majmudar, was not named in the SEC complaint nor in the investors’ lawsuit.

Richard Sandow, a Texas-based investment adviser who provides expert testimony in securities fraud cases across the country, examined court records in the case at the AJC’s request. He said unraveling such a complex case can take time.

“There are a lot of wrinkles that go on to add complexity to and hide the underlying reality,” Sandow said. But the SEC’s allegation, he said, is simple: It was fraud.

Late last week, a judge signed a consent order preventing Meyer from moving money out of the fund and restraining any loans from it on behalf of Meyer, Statim, or other Meyer relatives. The SEC says that the fund has about $32.5 million in assets.

Craig Kuglar, the Atlanta securities litigator who is representing Nieves and other investors, said his clients are somewhat relieved to know that the SEC apparently has not felt the need to try to freeze the fund’s assets.

“We’re keeping our fingers crossed that he was as successful as he claimed to be,’’ Kuglar said.

Nieves said she’d prefer to learn that the SEC got it wrong and that her money was safe.

The next court hearing to discuss the SEC’s complaint is scheduled for Feb. 19, according to an SEC spokesman, who declined comment.

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