BUSINESS

Colorado seizes assets of hedge-fund manager accused of Ponzi scheme

By Greg Griffin
The Denver Post

POSTED: 04/28/2010 01:00:00 AM MDT
UPDATED: 04/28/2010 06:24:38 AM MDT

EXTRAS

If you or someone you know are victims of alleged Ponzi schemer Sean Mueller and are willing to discuss your experience, please contact Steve Raabe of The Denver Post at sraabe-AT-denverpost.com.

Colorado authorities Tuesday seized the assets of a south-Denver-area hedge-fund manager accused of running a Ponzi scheme that may have involved as much as $122 million.

The state said that Sean Mueller raised more than $20 million from three investors and that at least 30 more also may have made "substantial investments."

Mueller threatened to kill himself Thursday and was found by Greenwood Village police, who took him to a hospital. He could not be reached Tuesday. Colorado Securities Commissioner Fred Joseph on Friday moved to freeze Mueller's assets and, on Tuesday, obtained a court order to appoint a receiver.

Mueller, 41, a strong golfer who belonged to the Cherry Hills Country Club, is believed to have attracted prominent Colorado residents to invest with his Mueller Capital Management firm based in Greenwood Village.

He hired former Janus Fund manager Blaine Rollins to be his director of research. Rollins was listed as a staff member on Mueller Capital's phone message Tuesday. The University of Colorado Leeds School of Business, where Rollins is a board member, described him as Mueller Capital's director of research.

Rollins, who left Janus in 2006, declined to comment when reached at home Monday night.

Mueller said in e-mails and notes last week that only he was involved in and aware of misdeeds at the company.

In a December investment statement released by investigators Tuesday, Mueller Capital's Over-Under Fund claimed assets of $122 million. But there was only $15 million in a Mueller-controlled Morgan Stanley account seized Tuesday.

"That is what is left," Mueller said in a handwritten note found Thursday. "I'm very sorry for the damage I have done. I always thought I could make it back. Nobody else had any involvement except me."

Mueller went on to say he falsified documents.

"Nobody in the firm got to see the original statements. I would have somebody fax or email a copy of a statement I did. They had no way of knowing it was false," he wrote.

$15 million client signed on

Several investors have told state investigators that Mueller claimed in person and in his investor statements that he had never lost money, even during the economic downturn. He continued to recruit investors this year, signing on a $15 million client in March.

But in an e-mail last week, he apologized to his clients for financial losses. Dow Jones Newswires reported Monday that Mueller was found by police Thursday considering a jump from about 19 stories.

Investigators said Mueller's e-mails and notes "reveal the strong probability that what was sent out to investors was not accurate and that there were in fact no profits, but instead substantial losses suffered by the investors."

In a Ponzi scheme, operators use newer investment contributions to pay off earlier investors. Investigators said Mueller had recently moved money from account to account, including at least $1 million transferred out of fund accounts in the past few weeks.

Mueller was the subject of a 1999 National Association of Securities Dealers arbitration award against Denver-based Adams Davis Co., his employer from 1995 to 1998. The investors, a married couple, claimed he mismanaged their investments.

The couple said "Mueller began completely ignoring their stated investment objectives and began to leverage their accounts using unsuitable high risk investments on margin and churn the account," according to the NASD award. The company denied the allegations but was ordered to pay $27,000.

Yaacov Ariel, who owned Adams Davis, said Mueller was a good salesman but didn't understand investments. "He was a lot better salesman than he was an investment broker or adviser. He just didn't have it," Ariel said.

Sought big-dollar investors

Mueller attended Metropolitan State College of Denver from 1986 to 1991 and worked from May 1994 to November 1995 for Denver-based Foster Jeffries Co.

Mueller began working as a day trader in 1998. In 2000, he founded Mueller Capital Management and two years later launched the Mueller Over-Under Fund. He sought investors willing to put at least $500,000 into his fund, which he hoped to grow to $100 million through limited-partnership interests, according to his 2002 private-placement memorandum.

His strategy relied heavily on day-trading techniques. The offering said Mueller would engage in short-term trading of stocks — sometimes holding them for as little as a few minutes — and would borrow money in order to leverage investor funds.

Staff writer Steve Raabe contributed to this report. Greg Griffin: 303-954-1241 or ggriffin-AT-denverpost.com