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| Andrew Caspersen, second from the right, leaving federal court in New York earlier this year. Mr. Caspersen is accused of defrauding friends, family — including his mother — and a foundation. Lucas Jackson/Reuters |
Federal prosecutors claim that Andrew Caspersen ran a Ponzi-like scheme to defraud friends, family and a hedge fund foundation of nearly $40 million over an 18-month period.
But on Tuesday, Mr. Caspersen’s lawyer contended that his client, a former Wall Street executive with an Ivy League pedigree, was the victim of an uncontrollable gambling addiction that drove him for more than a decade. So gripping was Mr. Caspersen’s addiction, the lawyer said, that he checked his phone throughout the day for updates on the stock market’s direction and his “all in” bearish bets that ran into tens of millions of dollars.
Dressed in a black suit and pink tie at his arraignment in a Manhattan federal courtroom Tuesday afternoon, Mr. Caspersen, 39, told a judge that he had been treated for “compulsive gambling and mental health illness” issues since his arrest in March.
The case of Mr. Caspersen, the son of a wealthy financier, Finn M. W. Caspersen, who committed suicide in 2009, has captivated Wall Street, in part because the scheme targeted friends, relatives — including his mother — and a charitable foundation established by Louis M. Bacon, the billionaire investor and hedge fund manager.
Mr. Caspersen appeared on Tuesday before Judge Jed S. Rakoff of Federal District Court and pleaded not guilty to a criminal document that included one count of securities fraud and one count of wire fraud. However, negotiations have been taking place for several weeks, and he is expected to plead guilty at a July 7 hearing.
After the short proceeding, Mr. Caspersen’s lawyer, Paul Shechtman, described him as “remorseful and relieved.” Mr. Caspersen has been cast as a man of privilege who took advantage of his social standing and professional position to fuel his trading addiction.
“He had every intention of paying everyone back,” Mr. Shechtman said. “This is a pathological gambling addiction.”
Before his arrest, Mr. Caspersen was seen as a successful Wall Street executive with the right credentials and pedigree. He had attended the Groton School, Princeton and Harvard Law School, and had gone on to become an executive at the Park Hill Group, a division of PJT Partners.
Mr. Caspersen leveraged his Ivy League connections and reputation to undertake what the authorities have called a “brazen” scheme to seek to defraud investors of tens of millions of dollars.
On Tuesday, Mr. Shechtman described Mr. Caspersen’s addiction as having started with casino gambling and sports betting, and quickly turning into betting on the stock market while he was a student at Harvard Law. Mr. Caspersen’s father and brothers all attended Harvard, where a student center at the law school is named for the family.
Over the last decade, Mr. Caspersen squandered more than $20 million of his own money, including a family inheritance, Mr. Shechtman said, adding that Mr. Caspersen and his wife, Christina, were essentially broke and were selling their multimillion-dollar Bronxville, N.Y., home.
Mr. Caspersen’s trading strategy was not particularly sophisticated. He almost exclusively traded one-week put options betting on a decline in the Standard & Poor’s 500-stock index. What was remarkable was the bold nature of the bets, in which Mr. Caspersen would instruct his broker to trade all the cash available in his account each week, his lawyer said.
As recently as Feb. 11, Mr. Caspersen had $112.8 million in a brokerage account and could have easily paid back the $38.5 million he had owed family and friends. Instead, the very next trading day he ordered his broker, at an unnamed Wall Street firm, to place a new round of all-in bets that the market would fall that week.
As stocks rose earlier this year and the market turned against him, Mr. Caspersen lost all the money in what the government described as aggressive bearish options trades. By March 9, his account had dwindled to $3.35 million. On March 26, he was arrested after representatives from Mr. Bacon’s foundation became suspicious when he would not return their money, and they reached out to federal authorities.
Mr. Caspersen even took about $1 million from the family of a longtime girlfriend, Catherine F. MacRae, who died on Sept. 11, 2001, during the terrorist attack on the World Trade Center, his lawyer said on Tuesday. Together with Ms. MacRae’s family, Mr. Caspersen had created a memorial fund to benefit education programs for children from low-income families. The lawyer said the money in the scheme was not from that fund.
Mr. Caspersen has also been charged with taking advantage of a college classmate at Princeton University who worked for Mr. Bacon’s firm. The friend, James McIntyre, invested $400,000 of his own money in Mr. Caspersen’s scheme and also gave the green light for a charitable trust affiliated with Moore Capital to invest close to $25 million.
Prosecutors working for Preet Bharara, the Manhattan United States attorney, added more details on Tuesday to the criminal complaint they filed in March.
The authorities now say that Mr. Caspersen had sought to defraud investors out of $150 million, up from the $95 million cited in the criminal complaint. The new criminal filing said he used some of the money he raised to “make periodic interest payments to earlier investors.”
Mr. Caspersen promised investors an annual return of 15 to 20 percent by putting up money that he said would be used to “make secured loans toprivate equity firms,” the authorities said.
In all, prosecutors said he used five fictitious investment vehicles to raise money to carry out the scheme. They said he also doctored documents and made up an employee at one firm as part of his bluff when he was questioned by investors.
An internal investigation by PJT Partners concluded that the amount of money Mr. Caspersen actually took in from investors in the last two years was about $40 million, of which $14 million came from friends and relatives, including his mother, Barbara Caspersen.
The Securities and Exchange Commission has filed a related civil fraud complaint against him.
Mr. Shechtman said news media reports have wrongly characterized his client as a man driven by greed and self-interest.
“This is not about Wall Street greed,” he said. “This is about addiction and mental illness.”
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