The manager of a purported AI-powered hedge fund has been arrested and charged with securities fraud by U.S. authorities.
According to an indictment unsealed in a New York federal court on Nov. 14, Kanen Flowers, who operated a hedge fund that was marketed as using AI to inform its long-short trading strategy allegedly misled investors about the fund’s portfolio, its trading performance and its assets under management. The hedge fund was known first as Katsu Fund Ltd., and later as, Next Alpha Ltd.
U.S. authorities alleged that Flowers “engaged in a scheme to defraud investors and prospective investors by inducing them to invest and maintain their investment in the fund through material misrepresentations and omissions.”
Additionally, he allegedly lied to investors about the fund’s assets when it was ultimately shut down, “claiming cryptocurrency lenders and exchanges were capping withdrawals or had even confiscated fund assets, when in fact Flowers had largely emptied the fund’s accounts at those cryptocurrency lenders and exchanges months prior.”
Flowers was charged with securities fraud, wire fraud and money laundering.
“Flowers is charged with shamelessly lying to investors to get their money and capitalizing on disruptions in the cryptocurrency market to hide the fact that he had pilfered investor funds for his own benefit,” said Breon Peace, U.S. attorney for the Eastern District of New York, in a release.
The allegations have not been proven in court.
Flowers was arrested in Arizona, and is to be transferred to New York to face the charges.