SEC v. Prophecy Asset Management, LP; Jeffrey Spotts; and Brian Kahn, No. LR-26414, District of New Jersey (Sept. 29, 2025) — Press Release

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 26414 / September 29, 2025 Securities and Exchange Commission v. Prophecy Asset Management, LP, Jeffrey Spotts, and Brian Kahn, No. 3:25-cv-16058 (D. N.J. filed Sept.29, 2025) SEC Charges Prophecy Asset Management, its CEO/CIO, and Largest Sub-Adviser in $500 Million Advisory Fraud The Securities and Exchange Commission today announced charges against New York-based Prophecy Asset Management LP as well as its CEO and Chief Investment Officer Jeffrey Spotts, and its largest sub-adviser Brian Kahn, for their roles in a multi-year fraud that concealed hundreds of millions of dollars of losses from investors while bringing in millions in management and incentive fees. According to the SEC’s complaint, Prophecy Asset Management raised over $500 million between 2014 and 2020 for hedge funds it advised, misleading investors to believe that their investments were protected from loss. The complaint alleges that Prophecy Asset Management and Spotts told investors that the funds’ capital was allocated among dozens of sub-advisers who traded in liquid securities and posted cash collateral to offset any trading losses they incurred. In reality, according to the complaint, most of the funds’ capital went to Kahn, who incurred massive trading losses that far exceeded the cash collateral he had contributed. As alleged, Prophecy Asset Management, Spotts, and the company’s Chief Compliance Officer, John Hughes, worked with Kahn to deceive the funds’ auditor and administrator – and, in turn, investors – through fabricated documents and engaging in a series of sham transactions to cover-up the true financial condition of the funds. According to the complaint, by March 2020, after losses in the funds exceeded $350 million, Prophecy Asset Management indefinitely suspended redemptions by investors. The SEC previously charged Hughes with fraud in connection with these events. The SEC’s complaint, filed in the United States District Court for the District of New Jersey, charges the defendants with violating the antifraud provisions of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8(a)(2) thereunder. The complaint also charges Prophecy Asset Management and Spotts with violating Exchange Act Rule 10b-5(b) and Advisers Act Rule 206(4)-8(a)(1). The complaint seeks permanent injunctions and a civil penalty from all defendants, disgorgement and prejudgment interest from Prophecy Asset Management and Spotts, and officer and director bars as to Spotts and Kahn. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Spotts. The SEC’s investigation was conducted by John V. Donnelly III, Julia C. Green and Brian R. Higgins under the supervision of Scott A. Thompson, all of the SEC’s Philadelphia Regional Office. Mr. Donnelly and Gregory R. Bockin, also of the Philadelphia Regional Office, will lead the litigation. This matter arose out of a referral from the Philadelphia Regional Office’s Examination Program.

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 26414 / September 29, 2025 Securities and Exchange Commission v. Prophecy Asset Management, LP, Jeffrey Spotts, and Brian Kahn, No. 3:25-cv-16058 (D. N.J. filed Sept.29, 2025) SEC Charges Prophecy Asset Management, its CEO/CIO, and Largest Sub-Adviser in $500 Million Advisory Fraud The Securities and Exchange Commission today announced charges against New York-based Prophecy Asset Management LP as well as its CEO and Chief Investment Officer Jeffrey Spotts, and its largest sub-adviser Brian Kahn, for their roles in a multi-year fraud that concealed hundreds of millions of dollars of losses from investors while bringing in millions in management and incentive fees. According to the SEC’s complaint, Prophecy Asset Management raised over $500 million between 2014 and 2020 for hedge funds it advised, misleading investors to believe that their investments were protected from loss. The complaint alleges that Prophecy Asset Management and Spotts told investors that the funds’ capital was allocated among dozens of sub-advisers who traded in liquid securities and posted cash collateral to offset any trading losses they incurred. In reality, according to the complaint, most of the funds’ capital went to Kahn, who incurred massive trading losses that far exceeded the cash collateral he had contributed. As alleged, Prophecy Asset Management, Spotts, and the company’s Chief Compliance Officer, John Hughes, worked with Kahn to deceive the funds’ auditor and administrator – and, in turn, investors – through fabricated documents and engaging in a series of sham transactions to cover-up the true financial condition of the funds. According to the complaint, by March 2020, after losses in the funds exceeded $350 million, Prophecy Asset Management indefinitely suspended redemptions by investors. The SEC previously charged Hughes with fraud in connection with these events. The SEC’s complaint, filed in the United States District Court for the District of New Jersey, charges the defendants with violating the antifraud provisions of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8(a)(2) thereunder. The complaint also charges Prophecy Asset Management and Spotts with violating Exchange Act Rule 10b-5(b) and Advisers Act Rule 206(4)-8(a)(1). The complaint seeks permanent injunctions and a civil penalty from all defendants, disgorgement and prejudgment interest from Prophecy Asset Management and Spotts, and officer and director bars as to Spotts and Kahn. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Spotts. The SEC’s investigation was conducted by John V. Donnelly III, Julia C. Green and Brian R. Higgins under the supervision of Scott A. Thompson, all of the SEC’s Philadelphia Regional Office. Mr. Donnelly and Gregory R. Bockin, also of the Philadelphia Regional Office, will lead the litigation. This matter arose out of a referral from the Philadelphia Regional Office’s Examination Program.