SEC v. Prophecy Asset Management, LP; Jeffrey Spotts; and Brian Kahn, No. 3:25-cv-16058, District of New Jersey (Sept. 29, 2025) — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

SECURITIES AND EXCHANGE
COMMISSION,
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:

Plaintiff,
:
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Civil Action No. 3:25-cv-16058

v. :
:
Complaint for Violations of the
Federal Securities Laws

PROPHECY ASSET MANAGEMENT, LP,
JEFFREY SPOTTS, and BRIAN KAHN,

Defendants.
:
:
:
:
:

Jury Trial Demanded

 :

 Plaintiff Securities and Exchange Commission (the “Commission”) alleges as follows
against defendants:  Prophecy Asset Management, LP (“PAM”), whose last known address is 641
Lexington Avenue, New York, NY 10022; Jeffrey Spotts (“Spotts”), whose last known address is
508 Jefferson Street, Whitehall, PA 18052; and Brian Kahn (“Kahn”),  whose last known address is
9935 Lake Louise   Drive, Windermere, FL 34786 (collectively, “Defendants”):
SUMMARY
1. This case involves a multi-year investment adviser fraud orchestrated by PAM,
Spotts, Kahn, and John Hughes (“Hughes”), which caused investors to lose more than $350
million.
2. Spotts and Hughes controlled PAM, formerly a registered investment adviser that
managed several funds (collectively referred to herein as “Prophecy” and “Special
Opportunities”), and Kahn was the largest sub-adviser for the funds.
3. Between 2014 and March 2020, PAM, Spotts, and Hughes raised more than $500
million from investors who invested in Prophecy and Special Opportunities and collected in
excess of $15 million in management and incentive fees.

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4. Together, PAM, Spotts, Kahn, and Hughes deceived Prophecy’s investors,
prospective investors, auditors, and administrator about its “first loss” business model that
purportedly allocated Prophecy’s capital to dozens of sub-advisers who were required to trade in
liquid securities and post cash collateral to absorb losses generated by their trading strategies.
5. In reality, PAM, Spotts, and Hughes allocated the vast majority of Prophecy’s
capital to Kahn, who incurred massive trading losses far exceeding the amount of cash collateral
he had contributed to Prophecy.
6. In addition, contrary to what they told investors, PAM, Spotts, and Hughes caused
Prophecy to spend investor funds on risky, highly illiquid investments, including investments
into Kahn entities, for which PAM performed little to no due diligence, resulting in substantial
additional losses to Prophecy.
7. To conceal these hundreds of millions of dollars in losses, PAM, Spotts, Kahn,
and Hughes used fabricated documents showing that Kahn posted adequate collateral and
engaged in a series of sham transactions to inflate the apparent value of Prophecy’s assets and
conceal the true financial condition of Prophecy.
8. At the same time, PAM, Spotts, and Hughes provided investors and prospective
investors account statements, “fact sheets,” and other promotional and due diligence materials
misrepresenting that Prophecy was diversified, liquid and secured by cash collateral, and
generated positive returns every month.
9. PAM, Spotts, Kahn, and Hughes further perpetrated their fraud with Special
Opportunities, which purported to give investors access to certain preferred trading strategies
identified by PAM.  However, when investors invested in Special Opportunities, the majority of
their money was simply transferred back to Prophecy or invested in entities controlled by Kahn.

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10. The actions of PAM, Spotts, Kahn, and Hughes painted an inaccurate picture of
Prophecy’s and Special Opportunities’ financial health by hiding losses and impaired assets,
which, in turn, inflated the value of the funds and generated excessive management and incentive
fees to PAM, Spotts, and Hughes.
11. By the end of March 2020, although Prophecy had never told investors it had lost
money for even a single quarter, Prophecy’s actual losses exceeded $350 million.  Prophecy’s
auditor then withdrew its 2018 audit opinion and resigned, and PAM, Spotts, and Hughes gated
Prophecy and Special Opportunities, indefinitely suspending redemptions by investors.
12. By engaging in the conduct described in this Complaint, PAM and Spotts
violated, directly or indirectly, and unless enjoined will continue to violate, Section 17(a) of the
Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities
Exchange Act of 1934 (“Exchange Act” [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17
C.F.R. § 240.10b-5]; and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940
(“Advisers Act”) [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-8 thereunder [17 C.F.R.
§ 275.206(4)-8]
13. By engaging in the conduct described in this Complaint, Kahn violated, directly
or indirectly, and unless enjoined will continue to violate, Section 17(a)(1) and (3) of the
Securities Act [15 U.S.C. §§ 77q(a)(1) and (3)]; Section 10(b) of the Exchange Act [15 U.S.C.
§ 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]; and Sections
206(1), (2), and (4) of the Advisers Act [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-
8(a)(2) thereunder [17 C.F.R. § 275.206(4)-8(a)(2)].

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JURISDICTION AND VENUE
14. The Commission brings this action pursuant to Sections 20(b) and 20(d) of the
Securities Act [15 U.S.C. §§ 77t(b), (d)], Sections 21(d) and 21(e) of the Exchange Act [15
U.S.C. §§ 78u(d), (e)], and Sections 209(d) and 209(e) of the Advisers Act [15 U.S.C. §§ 80b-
9(d), (e)] to enjoin such acts, practices, and courses of business, and to obtain disgorgement with
prejudgment interest, civil money penalties, an officer and director bar,  and such other and further
relief the Court may deem just and appropriate.
15. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d), and
22(a) of the Securities Act [15 U.S.C. §§ 77t(b), (d), and 77v(a)]; Sections 21(d), 21(e), and 27
of the Exchange Act [15 U.S.C. §§ 78u(d), (e), and 78aa]; and Sections 209(d), 209(e), and 214
of the Advisers Act [15 U.S.C. §§ 80b-9(d), (e), 80b-14].  Defendants, directly or indirectly,
made use of the mails, or the means and instrumentalities of interstate commerce, or the facility
of national security exchanges, in connection with the transactions, acts, practices, and courses of
business alleged in this Complaint.
16. Venue in this district is proper pursuant to Section 22(a) of the Securities Act [15
U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. § 78aa], Section 214 of the
Advisers Act [15 U.S.C. § 80b-14], and 28 U.S.C. § 1391(b), because certain acts, practices,
transactions, and courses of business constituting violations of the federal securities laws
occurred within the District of New Jersey.  For example, in connection with the fraud, during
the relevant time period, Spotts and Hughes conducted business from their respective homes in
New Jersey.  As PAM operated through them, PAM too conducted business in this District.  In
addition, Kahn sent and/or caused to be sent, wire transmissions that went through servers
located in New Jersey, including fabricated documents sent to Hughes at his home in New

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Jersey.
DEFENDANTS
17. PAM is a Delaware limited partnership and was a registered investment adviser
established in 2001.  PAM provided investment advisory services to the investment funds
defined below.  PAM’s registration status with the Commission was cancelled on July 5, 2023.
18. Spotts, age 58, currently resides in Pennsylvania.  During the relevant period, he
was a 50% co-owner of PAM and, along with Hughes, had authority over all uses of investor
capital invested in the investment funds defined below.  During the relevant period, Spotts
resided in and worked from his home in Summit, New Jersey.
19. Kahn, age 52 resides in Florida.  During the relevant period, he controlled several
entities that traded the investment funds’ capital or to which the investment funds loaned their
capital.
RELEVANT INDIVIDUAL AND ENTITIES
20. John Hughes, age 58, resides in Mahwah, New Jersey.  During the relevant
period, Hughes was a 50% co-owner of PAM and, along with Spotts, had authority over all uses
of investor capital invested in the investment funds defined below.  On November 2, 2023, the
Commission charged Hughes with securities fraud for his participation in the scheme described
in this Complaint.  Hughes was also charged criminally for the same conduct and pled guilty to
conspiracy to commit securities fraud.
21. “Prophecy,” as used herein, refers collectively to the following investment funds:
Prophecy Trading Advisors Master Fund LP; Prophecy Trading Advisors LP; and Prophecy
Trading Advisors International LTD.  On March 31, 2020, PAM, Spotts, and Hughes caused
Prophecy to suspend investor redemptions and the payment of investor redemptions.

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22. During the relevant period, Prophecy Trading Advisors Master Fund LP (“Master
Fund”),  a Cayman Islands limited partnership established in 2018, operated as a purported hedge
fund.
23. During the relevant period, Prophecy Trading Advisors LP (“PTA”), a Delaware
limited partnership established in 2011, operated as a purported hedge fund.
24. During the relevant period, Prophecy Trading Advisors International LTD (“PTA
International”), a British Virgin Islands limited company established in 2012, operated as a
purported hedge fund.
25. “Special Opportunities,” as used herein, refers collectively to the following
investment funds: Prophecy Special Opportunities Fund LP and Prophecy Special Opportunities
Fund International LTD.
26. During the relevant period, Prophecy Special Opportunities Fund LP, a Delaware
limited partnership established in 2018, operated as a purported hedge fund.
27. During the relevant period, Prophecy Special Opportunities Fund International
LTD, a British Virgin Islands limited company established in 2018, operated as a purported
hedge fund.
28. During the relevant period, Vintage Capital Management LLC (“Vintage”) was an
asset management company controlled by Kahn.
29. During the relevant period, Samjor Family LP was an asset management company
controlled by Kahn.

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  FACTS
A. Background

30. In 2001, Spotts founded PAM, which became an SEC-registered investment
adviser on May 9, 2012.  Spotts was PAM’s Chief Executive Officer and Chief Investment
Officer.  His primary duties included raising capital for Prophecy, communicating with investors
and prospective investors, and identifying and selecting sub-advisers.
31. Hughes joined PAM in 2006.  He served as PAM’s President and Chief
Compliance Officer, oversaw the back-office and risk management operations for PAM, and,
along with Spotts, selected sub-advisers.
32. At all relevant times after Hughes joined PAM in 2006, Hughes and Spotts jointly
ran and controlled PAM, and each were involved in, and agreed to, major decisions concerning
Prophecy’s operations.
33. PAM was the investment adviser to Prophecy, which originally consisted of PTA
and eventually included PTA International and the Master Fund.  In July 2018, Prophecy
transitioned to a master-feeder structure, converting both PTA and PTA International into feeder
funds that invested all the capital in the newly created Master Fund, where all investment activity
took place.
34. From its inception, at the direction of Spotts and Hughes, through PAM, Prophecy
operated a “first-loss” business model purportedly to minimize the risk of loss to investors.
Under this model, PAM claimed to allow a diverse group of sub-advisers to use Prophecy’s
capital to implement their own trading strategies in liquid securities and share the profits with
Prophecy.  To protect Prophecy’s capital, PAM purportedly required sub-advisers to “post” cash
collateral by depositing cash in an account controlled by a third-party to absorb any losses

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generated by their trading strategies.  Typically, PAM required sub-advisers to post 10% of the
agreed upon trading allocation as cash collateral to be available to cover possible losses.
35. PAM also purportedly required sub-advisers to use Prophecy’s execution
management system, a trading platform wherein Prophecy would allocate capital to the sub-
advisers, who then traded the capital in prime brokerage accounts held by Prophecy.
36. The trading platform purportedly allowed PAM to manage risk by actively
monitoring the overall portfolio and the performance and liquidity of each trading strategy and
ensuring that each sub-adviser maintained adequate cash collateral relative to their exposure.
37. PAM and Spotts claimed that if a sub-adviser’s losses exceeded their posted cash-
collateral, PAM would cut off the sub-adviser’s trading until the sub-adviser provided additional
cash collateral.
38. Sub-advisers enjoyed the benefits of leveraged trading capital provided by
Prophecy’s prime brokers and back-office support from Prophecy in return for the payment of a
monthly administrative fee and a percentage of any trading profits generated.  In exchange for
their agreement to pay the administrative fee and absorb trading losses up to the amount of their
cash deposit, PAM permitted the sub-advisers to keep a larger percentage (as compared to
industry standards) of their trading profits, typically 80% or more.
39. PAM entered into an Account Investment Advisory Agreement (“Advisory
Agreement”) with each sub-adviser, including Kahn (via certain entities he controlled), to
memorialize certain terms, including the amount of capital to be allocated to the sub-adviser for
trading, administrative fees, profit split percentages, and the amount of cash collateral to be
posted by the sub-adviser.

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40. The Advisory Agreement indicated that all collateral posted by the sub-adviser
was to be segregated in a separate bank account controlled by Prophecy’s administrator and used
to offset any trading losses incurred by that sub-adviser.  PAM, Spotts, and Hughes frequently
provided an example Advisory Agreement to investors for due diligence purposes.
41. To induce investments in the funds, PAM, Spotts,  and Hughes, through marketing
documents for the funds, represented that the combination of a lower profit split to Prophecy, the
monthly administrative fees collected from all sub-advisers, and the insurance against trading
losses afforded by each sub-adviser’s cash deposit purportedly created a steady stream of mid to
high single-digit returns uncorrelated to market conditions or the performance of the sub-
advisers.
42. Conceptually, if Prophecy allocated $1 million for a sub-adviser to trade, that sub-
adviser should post $100,000 in cash in an account controlled by Prophecy’s administrator.  If
the sub-adviser sustained losses, $20,000 for example, Prophecy could use the cash on deposit to
cover the losses and reduce the capital available to the sub-adviser to trade until the collateral
was replenished.  In this way, Prophecy theoretically would not suffer any losses.  According to
representations made by PAM, if a sub-adviser’s losses absorbed 50% or more of their cash
collateral, PAM would stop the sub-adviser’s trading and require additional collateral or a
reduction in exposure.
43. In short, Prophecy was supposed to be monitoring sub-advisers trading in real
time and was supposed to step in to mitigate risk and limit losses to the cash collateral provided
by a sub-adviser.
44. PAM, Spotts, and Hughes collectively represented to investors and prospective
investors in written materials and orally that Prophecy followed this first-loss business model.

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B. PAM, Spotts, and Hughes Misrepresented Prophecy’s Business Model to
Investors and Prospective Investors

45. The premise of steady, single-digit returns protected against loss promoted to
investors and potential investors by PAM, Spotts, and Hughes, was based on their
misrepresentations that described active risk management where sub-advisers were purportedly
routinely monitored with respect to diversification, cash collateral, and liquidity of trading
strategies.  In reality, PAM, Spotts, and Hughes knew or were reckless in not knowing that these
representations they made about monitoring, diversification, collateral, and liquidity were false
or misleading.
1. Misrepresentations Regarding Sub-Adviser Diversification
46. In written materials and/or orally, PAM, Spotts, and Hughes touted sub-adviser
diversification as a key aspect of Prophecy’s purported first-loss trading strategy because it
minimized concentration risk.  In other words, the risk to Prophecy would be reduced by
avoiding over-exposure to a single sub-adviser.  Thus, even if one sub-adviser incurred losses
exceeding the balance of their cash deposit, the funds being managed by other sub-advisers
would not be impacted.
47. PAM, Spotts, and Hughes represented to investors and prospective investors that
Prophecy’s capital was allocated to dozens of sub-advisers employing multiple diverse and even
“unique” trading strategies.  For example, PAM distributed monthly “fact sheets” to investors
stating that Prophecy “seeks to generate returns by making notional allocations to a diverse
group of sub-advisers running a variety of discretionary, systematic and unique investment
strategies.”

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48. Similarly, PAM, Spotts,  and Hughes provided investors and prospective investors
a Due Diligence Questionnaire, which stated that Prophecy has “a diversified sub-adviser
platform.”
49. In meetings and phone conversations, Spotts told prospective investors that
diversification of sub-advisers helped minimize concentration risk.
50. However, PAM, Spotts,  and Hughes knew, or were reckless in not knowing—and
concealed from investors—that from at least 2017 through March 2020, the majority of
Prophecy’s assets were allocated to Kahn or Kahn-controlled entities for purposes of trading.
51. PAM, Spotts, and Hughes received monthly Portfolio Breakdown Reports, which
were internal reports that identified each sub-adviser by name, including Kahn, and listed their
allocation amounts.
52. In December 2018, PAM began circulating these monthly Portfolio Breakdown
Reports to investors and prospective investors but anonymized each sub-adviser as “Manager 1”,
“Manager 2”, etc.
53. The Portfolio Breakdown Reports concealed Prophecy’s massive concentration in
Kahn by presenting his total allocation as if Kahn were multiple, individualized sub-advisers.
54. For example, the December 2018 report listed 33 sub-advisers and identified them
merely as Manager 1 through Manager 33.  Unbeknownst to investors, six of the 33 sub-advisers
were controlled by Kahn, who had been allocated approximately 78% of Prophecy’s more than
$1 billion in leveraged capital available for trading.
2. Misrepresentations Regarding Kahn’s Cash Collateral

55. PAM, Spotts, and Hughes distributed offering and marketing documents that also
stated that Prophecy protected its capital from losses by holding cash collateral contributed by

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each sub-adviser.  PAM represented that if a sub-adviser’s losses absorbed 50% or more of its
cash collateral deposit, PAM would stop the sub-adviser’s trading and require additional
collateral or a reduction in exposure.
56. For example, the Due Diligence Questionnaire provided to potential investors
specifically stated that allocations to sub-advisers “are supported by cash deposits provided by
each sub-adviser.  The deposits serve as the primary downside risk protection for the fund.”  The
Due Diligence Questionnaire further boasted that Prophecy’s “‘edge’ is that each sub-adviser is
accountable for losses from their strategy and must supply capital to a third-party deposit account
or similar collateral structure.  This deposit is used to offset any losses.”
57. Further, Prophecy’s 2017 audited financial statements, which were provided to at
least some investors, stated that Prophecy maintains contractual agreements that required each
sub-adviser “to deposit their own capital into a separate bank account managed by the Fund
administrator.  . . . Sub-advisers agree to absorb their trading losses by reimbursing the Fund
from the deposited capital.”  In addition, on calls and/or in-person meetings with investors and
prospective investors, Spotts represented that Prophecy required cash deposits equal to 10% of a
sub-adviser’s trading allocation to absorb any trading losses incurred.
58. Since at least 2018, Prophecy’s cash collateral deposits fell well short of the stated
10% of sub-adviser allocations.  Prophecy, Spotts, and Hughes knew, or were reckless in not
knowing, that Prophecy’s cash collateral deposits were short of the stated 10% of sub-adviser
allocations.
59. For example, as of January 2019, Prophecy’s total cash deposit balance equaled a
mere 0.77% of the reported gross market value of its assets.  By July 2019, Prophecy’s cash

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deposit balance dipped even lower, to 0.05%.  PAM, Spotts, and Hughes knew, or were reckless
in not knowing, that Prophecy’s cash collateral deposits were well short of the 10% mark.
60. PAM, Spotts, and Hughes allowed Prophecy to all but abandon its cash deposit
requirement for Kahn, notwithstanding Kahn’s outsized allotment of Prophecy’s trading capital
and enormous trading losses.
61. For instance, Kahn’s trading losses exceeded the amount of the cash collateral
Kahn had contributed by: $55 million in September 2018; $216 million in November 2019; and
$328 million in March 2020.
62. At all times, PAM, Spotts, and Hughes were aware of Kahn’s trading losses and
related cash deposit deficits because they were provided monthly reports indicating each sub-
advisers’ profit and loss and cash deposit balances.  Spotts and Hughes also discussed Kahn’s
trading losses in person and by phone.  Nevertheless, PAM, Spotts, and Hughes allowed Kahn to
continue trading.
63. Despite knowing of Kahn’s continually increasing cash collateral deficit and
mounting trading losses, PAM, Spotts, and Hughes continued to falsely claim to investors that no
sub-adviser had ever exhausted its cash collateral deposit.
64. Kahn’s losses, which exceeded deposited capital,  also meant that Prophecy
suffered massive losses for which it had no mechanism to reasonably guarantee reimbursement.
Yet Prophecy continued to claim it had experienced positive returns since its inception.

65. Contrary to the representations of PAM, Spotts, and Hughes, Prophecy first had a
sub-adviser exhaust their cash collateral in January 2014, when a sub-adviser lost nearly $3
million of investor capital, an amount well in excess of his cash collateral.  At that time, in order

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to avoid recording losses for Prophecy, PAM, Spotts, and Hughes caused Prophecy to enter into
a series of sham transactions to conceal the loss.
66. Despite that event and the continued losses of Kahn, PAM, Spotts, and Hughes
continued to knowingly and/or recklessly mislead investors about Prophecy’s performance.  In
an email dated Oct. 28, 2018, several weeks after Kahn exhausted his cash collateral deposit and
his trading losses reached $55 million, Spotts wrote to investors: “No portfolio managers had a
severe enough decline in the allocations to exhaust their deposit and impair the fund.”  Spotts
knew or was reckless in not knowing that this was false.
67. On May 2, 2019, PAM sent Prophecy’s largest investor a document containing
information on each sub-adviser’s trading results and deposit balance which reflected that Kahn
maintained a deposit balance of more than $36 million.  PAM, Spotts, and Hughes knew, or were
reckless in not knowing, this information was false.
68. Contrary to that representation, as of May 2, 2019, the bank account designated to
hold cash collateral posted by all of Prophecy’s sub-advisers contained less than $10 million and
internal records maintained by Prophecy indicated that Kahn had a cash collateral deficit on May
2, 2019 of approximately $130 million.
69. From January 2018 through March 2020, Kahn’s trading losses exceeded the
balance of his cash collateral for all but one month.
70. By February 2020, Kahn’s deposit balance deficit approached $200 million.
Although PAM, Spotts, and Hughes knew, or were reckless in not knowing, that Kahn’s deposit
balance had a massive deficit, Spotts emailed a prospective investor, falsely claiming “the fund is
a pure first-loss strategy, with all allocations backstopped by collateral deposits.”

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3. Misrepresentations Regarding Liquidity of Investments

71. PAM’s offering documents were also replete with misrepresentations that
Prophecy’s investments were concentrated in liquid securities traded on Prophecy’s platform.
Spotts and Hughes knew or were reckless in not knowing that these were misleading statements.
72. For example, the Due Diligence Questionnaire falsely stated that “[t]he majority
of positions across the fund can be liquidated within one business day without significantly
impacting prices.”
73. During due diligence meetings with potential investors, Spotts represented that
Prophecy’s sub-advisers traded in mainly highly liquid US equities on Prophecy’s trading
platform, allowing PAM to monitor a sub-adviser’s trading activity and quickly liquidate
positions if the losses breached the sub-adviser’s cash deposit.
74. Spotts represented to at least one investor that although Prophecy would
occasionally extend loans, or make direct investments in sub-advisers, which PAM referred to as
“off-platform” investments, these strategies were for arbitrage-like trading with low downside
and comprised less than 5% of Prophecy’s assets.  Spotts represented further that PAM
maintained full transparency regarding the off-platform investments.  Spotts knew or was
reckless in not knowing that this was false.
75. Contrary to these representations, from 2018 through March 2020, PAM, Spotts,
and Hughes routinely caused Prophecy to invest substantial sums of money in off-platform,
illiquid investments.
76. By the end of 2019, PAM, Spotts, and Hughes knew, or were reckless in not
knowing, that off-platform investments represented approximately 75% of Prophecy’s reported
net asset value.  Furthermore, PAM, Spotts, and Hughes knew, or were reckless in not knowing,

16
that these investments were frequently not in low-risk, arbitrage-like trading strategies over
which PAM had full transparency, but were instead comprised mainly of unsecured loans or
investments in special purpose vehicles, often with Kahn-controlled entities, for which PAM,
Spotts, and Hughes performed little or no due diligence.
C. Kahn’s Trading Losses Were Concealed From Investors

77. PAM, Spotts, and Hughes knew, or were reckless in not knowing, that Kahn’s
trading had resulted in massive losses for Prophecy for which there was not adequate cash
collateral.  Yet they failed to disclose to investors the massive trading losses incurred by Kahn
and made false representations to investors about Prophecy’s performance.
78. From at least October 2017 through March 2020, PAM, Spotts, and Hughes
caused PAM to solicit significant sums of new investor capital while representing to investors
and potential investors that it had generated positive monthly returns every month since its
inception.  For example, in March 2020, a PTA fact sheet circulated to investors showed positive
performance in every month between October 2011 and January 2020.  PAM, Spotts, and
Hughes knew, or were reckless in not knowing, that these representations were false.
79. The following chart shows Prophecy’s monthly assets under management
alongside the concealed cumulative trading losses generated by Kahn.  (The undisclosed
cumulative trading losses include both unrealized marked-to-market losses and realized cash
losses.)  PAM, Spotts, and Hughes knew, or were reckless in not knowing, that, by January 2020,
Kahn’s use of leverage resulted in cumulative losses of approximately $270,000,000, which was
more than 74% of the reported assets under management:

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Month Reported
Assets Under
Management
(Prophecy
only)
Undisclosed Kahn
Cumulative
Trading Losses
Jan ‘18 $193,262,221 ($68,796,437)
Feb ‘18 $206,680,330 ($89,272,107)
Mar ‘18 $210,514,769 ($73,855,675)
Apr ‘18 $231,581,824 ($84,973,086)
May ‘18 $231,296,977 ($99,856,774)
Jun ‘18 $238,882,887 ($55,769,941)
Jul ‘18 $251,960,512 ($86,149,501)
Aug ‘18 $278,391,448 ($99,029,274)
Sep ‘18 $281,328,749 ($133,547,197)
Oct ‘18 $291,278,303 ($92,770,160)
Nov ‘18 $300,145,549 ($126,465,092)
Dec ‘18 $309,940,471 ($85,457,632)
Jan ‘19 $316,671,028 ($110,945,903)
Feb ‘19 $352,256,146 ($141,049,323)
Mar ‘19 $363,039,646 ($164,932,011)
Apr ‘19 $351,669,307 ($193,341,589)
May ‘19 $334,611,151 ($270,389,293)
Jun ‘19 $338,605,040 ($274,697,896)
Jul ‘19 $346,130,025 ($277,349,650)
Aug ‘19 $371,751,174 ($272,194,183)
Sep ‘19 $395,227,258 ($260,971,957)
Oct ‘19 $361,330,212 ($278,964,629)
Nov ‘19 $367,180,474 ($288,855,554)
Dec ‘19 $363,079,864 ($264,739,409)
Jan ‘20 $363,042,750 ($270,944,717)

80. The losses appeared to continue to mount in February and March 2020 when
undisclosed trading losses rose to more than $400,000,000.

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D. PAM, Spotts, Kahn, and Hughes Concealed Kahn’s Lack of Cash Collateral

81. PAM, Spotts, Kahn, and Hughes deceived Prophecy’s administrator and auditor
by entering into sham transactions to provide Kahn with cash to cover his trading losses and
falsifying documentation designed to create the appearance that Kahn’s trading losses remained
secured by non-cash collateral.  This deception kept investors and potential investors from
learning of the losses.
82. Kahn, Spotts, and Hughes met for lunch on approximately May 25, 2019 at a
restaurant in New Jersey to discuss the situation.  In the weeks and months that followed that
meeting, Spotts and Kahn communicated extensively and Spotts directed Kahn on various
communications with Prophecy’s auditor and administrator.
1. PAM, Spotts, Kahn, and Hughes Used Investor Funds for Kahn’s
Cash Collateral

83. For example, by October 2017, Kahn had a negative cash collateral deposit of
more than $20 million.  Kahn was either unwilling or unable to contribute additional cash to cure
the deficit.  Rather than restrict his trading until he contributed additional cash collateral, Hughes
and Kahn entered into an agreement in which Hughes caused Prophecy to engage in a “round-
trip” transaction with Kahn that both understood was designed to artificially replenish Kahn’s
cash collateral deposit.  The below diagram illustrates this round-trip transaction:

19

84. Specifically, Kahn and Prophecy executed a promissory note whereby Prophecy
purported to “loan” $11 million of investor funds to AGS Enterprises LLC (“AGS Enterprises”),
an entity with no assets or operations that was owned by Kahn.  However, through a series of
transactions, AGS Enterprises immediately returned $10 million of that amount to Prophecy
masked as collateral contributions by Kahn.
85. First, on November 22, 2017, Prophecy wired $5 million to AGS Enterprises.
That same day, Kahn caused AGS Enterprises to wire $5 million to Samjor Family, Kahn’s sub-
adviser entity.  Then, Kahn caused Samjor Family to immediately wire that money back to
Prophecy, which recorded the $5 million as a cash collateral contribution from Kahn,
notwithstanding that Prophecy had originally advanced this money to Kahn’s entity.
86. Eight days later, on November 30, the parties repeated the same process, taking
another $5 million from Prophecy, routing it through entities owned by Kahn, and Kahn sending
the same amount of money back to Prophecy to further “replenish” his cash deposit account.
87. Less than a week later, on December 6, Prophecy sent another $1 million to AGS
Enterprises.
88. In an email, Hughes falsely told Prophecy’s administrator that the $11 million
Prophecy sent to AGS Enterprises in November and December 2017 was “to fund a new
investment.”  However, Kahn and AGS Enterprises did not invest the $11 million on behalf of
Prophecy.  Instead, they simply sent $10 million of it back to Prophecy as cash collateral in a
roundtrip transaction and used the remaining $1 million for other purposes.
89. Kahn forged the signature of a former colleague as the signer of the sham loan
agreement between Prophecy and AGS Enterprises on behalf of AGS Enterprises, thereby

20
concealing his involvement in the transaction from Prophecy’s auditor and administrator.
However, Kahn’s former colleague had no knowledge of this transaction and was no longer
associated with AGS Enterprises at the time of the agreement.
2. Kahn Provided Worthless Non-Cash Collateral to Prophecy
90. Prophecy did not report Kahn’s trading losses to investors.  Instead, PAM, Spotts,
and Hughes caused Prophecy to record Kahn’s trading losses on its books as a receivable from
Kahn.  While the amount of the receivable changed depending on the investments and market
conditions, as of year-end 2018, the purported receivable accounted for approximately 0.8% of
Prophecy’s reported assets under management.
91. As Kahn’s losses mounted, however, the purported receivable comprised a rapidly
increasing percentage of Prophecy’s assets under management.  By the end of 2019, the claimed
receivable accounted for nearly 53% of Prophecy’s assets under management.
92. To purportedly secure the receivable with collateral, Kahn and Prophecy entered
into at least six agreements consisting of, among other things, personal guaranties, promissory
notes, and pledged “assets,”  which did not exist or had questionable value.  Yet, PAM, Spotts,
and Hughes never wrote down or discounted the value of this receivable, or provided auditors
with information that would have suggested it was not worth the full stated value.
93. PAM, Spotts, and Hughes performed little to no due diligence on these assets (or
on Kahn’s personal finances), never taking any reasonable steps to value, control, or redeem the
non-cash collateral provided by Kahn, some of which was wholly fabricated.
94. In addition, PAM, Spotts, Hughes, and Kahn deceived Prophecy’s auditors
regarding the purported non-cash collateral provided by Kahn.

21
95. For example, in April 2019, during Prophecy’s on-going 2018 audit, Prophecy’s
auditor identified that Kahn had a substantial cash deposit deficit during 2018 and emailed
Hughes stating he “wanted to understand what was the rationale for the negative deposit
accounts for [Kahn] and how/when Prophecy plans to remediate the same.”
96. Subsequently, Kahn and Hughes fabricated certain documents concerning a
purported agreement between Prophecy and Buddy’s Newco LLC (“Buddy’s”), a company
controlled by Kahn.
97. Specifically, Kahn created an agreement titled, “Buddy’s Newco LLC Series A
Preferred Stock Agreement” (“Buddy’s Preferred Stock Agreement”).  On April 10, 2019, Kahn
emailed Hughes a draft of the Buddy’s Preferred Stock Agreement that purported to show
Prophecy’s ownership of $125 million worth of preferred shares of Buddy’s stock, backdated to
January 1, 2018.
98. Between April and June 2019, Kahn and Hughes exchanged additional drafts of
the Buddy’s Preferred Stock Agreement in which the assigned value of the shares ranged from
$75 million to $150 million.
99. On June 1, 2019, Hughes emailed Kahn stating that they needed to “Finalize the
class [A] share document and get certificate for same.”  Kahn responded, “Confirm date of
issuance for you should be January 2018.  This would become a credit to the fund and an asset
on your balance sheet year end 2018 . . . .”
100. By June 3, 2019, Kahn delivered to Hughes two Buddy’s Convertible Stock
Certificates (“Buddy’s Certificates”) backdated to January 3, 2018.  One of the certificates was
for 75 shares with a purported valuation of $75 million.  The second certificate was for 150
shares with a purported valuation of $150 million.  Subsequently, Hughes provided Prophecy’s

22
auditor with the Buddy’s Preferred Stock Agreement and the Buddy’s Certificate purportedly
valued at $75 million.
101. In response to a series of questions from Prophecy’s auditor, after a phone call
with Spotts, Hughes, and at least one other person during which Kahn was instructed on the
responses to provide to the auditor’s inquiry, Kahn falsely confirmed that he had authority to
issue the preferred stock to Prophecy, the preferred stock was issued and outstanding as of
December 31, 2018, and that the preferred stock was collateral used to secure his 2018 trading
losses.
102. In reality, Buddy’s Newco LLC Series A Preferred Shares were never issued to
Prophecy or anybody else because the shares never existed.  The entire agreement and
transaction was a sham created by Kahn, Spotts, and Hughes.  Spotts, Kahn, and Hughes knew,
or were reckless in not knowing, this was done to mislead Prophecy’s auditor.
103. Around this same time, Prophecy’s administrator requested additional information
concerning Kahn’s non-cash collateral in light of Kahn’s rapidly accelerating trading losses in
2019.  In an email dated June 18, 2019, Prophecy’s administrator indicated that more than 58%
of Prophecy’s $350 million net asset value was in the form of a $204 million receivable due from
Kahn and should be classified as illiquid.
104. The administrator requested that Prophecy identify the non-cash collateral that
Kahn purportedly pledged to secure the receivable owed to Prophecy and provide the
administrator with signed monthly certifications.
105. In response, Hughes provided the administrator with the other Buddy’s Preferred
Stock Agreement that Kahn created, which purported to grant Prophecy $150 million worth of

23
preferred shares but was now dated January 1, 2019.  As before, these shares did not exist.  The
entire agreement and transaction was a sham created by Kahn, Spotts, and Hughes.
106. As requested, Prophecy began providing its administrator with certified monthly
spreadsheets, signed by Hughes, listing Kahn’s non-cash collateral.  These monthly spreadsheets
included the Buddy’s preferred shares, and other bogus collateral, and falsely represented to
Prophecy’s administrator that the collateral was valid and could be liquidated to settle Kahn’s
receivable arising from his trading losses.
107. PAM, Spotts, Kahn, and Hughes knew, or were reckless in not knowing, that the
purported Buddy’s preferred shares were a sham.
3. Kahn’s Losses And Lack of Cash Collateral Were Never Disclosed To
Investors

108. In addition, PAM, Spotts, and Hughes never disclosed to investors that Kahn had
sustained massive losses or that they were permitting Kahn to continue trading without providing
sufficient collateral to be consistent with their represented business model.
109. Prophecy’s June 2019 investor account statements, issued in July 2019, included a
disclosure at the bottom that Prophecy may accept non-cash collateral.  However, PAM, Spotts,
and Hughes never disclosed that Prophecy actually was accepting millions in non-cash collateral
from its largest sub-adviser and that much (if not all) of the non-cash collateral were actually
sham assets that Kahn, Spotts, and Hughes made up.
110. PAM, Spotts, and Hughes provided prospective investors with marketing and due
diligence materials referenced in this Complaint, which made no mention that Prophecy accepted
non-cash collateral in lieu of cash, let alone in excess of $100 million from its largest sub-
adviser.

24
E. PAM, Spotts, Kahn, and Hughes Concealed “Off-Platform” Investment Losses
111. PAM, Spotts, Kahn, and Hughes also concealed other Prophecy losses associated
with impaired assets on Prophecy’s balance sheet from Prophecy’s auditor and administrator—
ultimately keeping information from investors and prospective investors—by engaging in a
series of sham and round-trip transactions using falsified and backdated documents.
112. From 2015 through 2019, Prophecy engaged in a series of elaborate sham, round-
trip transactions with entities controlled by Kahn, Brenda Smith (“Smith”) and George Heckler
(“Heckler”).  These transactions concealed from Prophecy’s auditor and administrator (and
ultimately its investors) losses Prophecy sustained, recasting the losses as new investments or
loans.  Hughes and Spotts both knew of, or were reckless in not knowing about, these sham
transactions, and took active roles in helping devise and effectuate these transactions.
113. On August 27, 2019, the Commission charged Smith and Broad Reach Capital LP
(“Broad Reach”), a hedge fund controlled by Smith, with securities fraud.  Smith was also
charged criminally for the same conduct and pled guilty to securities fraud.
114. On March 9, 2021, the Commission charged Heckler with securities fraud.  He
was also charged criminally for the same conduct and pled guilty to securities fraud.
115. Below are illustrative examples of some of the sham, round-trip transactions that
the PAM, Spotts, Kahn, Hughes and others utilized to conceal Prophecy’s losses.

25
1. Cassatt Short Term Trading Fund
116. By year-end 2014, Prophecy had invested more than $20 million with Cassatt
Short Term Trading Fund (“Cassatt”), a private hedge fund controlled by Heckler and ultimately
revealed to be a Ponzi-like, fraudulent scheme.
117. By the end of 2014, Heckler had ceased all trading activities, closed Cassatt’s
brokerage accounts, mainly held illiquid assets, and was unable to fully redeem Prophecy’s
investment.
118. Although PAM, Spotts, and Hughes knew, or were reckless in not knowing, that
Cassett was unable to fully redeem Prophecy’s investment, they failed to disclose to investors,
prospective investors, or auditors Prophecy’s substantial loss via the Cassatt investment, which
would directly contradict representations made to investors regarding Prophecy’s investment
strategy and liquid assets, and would jeopardize the future prospects of both Prophecy and PAM.
119. For instance, by 2018, Prophecy’s investment losses in Cassatt had been shifted to
another hedge fund advised by PAM, Prophecy Alpha Fund LP (the “Alpha Fund”) and re-
characterized as a $22.5 million loan owed to the Alpha Fund by another Heckler entity.
120. In February 2018, PAM, Spotts, and Hughes concealed the loss by causing
Prophecy to “invest” an equivalent amount ($22.5 million) in Clearview Fund LP (“Clearview”),
an entity controlled by Smith.  Clearview, in turn, used the investment proceeds obtained from
Prophecy to purchase from the Alpha Fund the clearly worthless loan owed by Heckler for face
value.  The worthless loan owed by Heckler was the only asset of Clearview.  So, PAM, Spotts,
and Hughes knew or were reckless in not knowing that the $22.5 million “investment” in
Clearview by Prophecy was essentially worthless.

26
121. In 2019, Kahn helped PAM, Spotts, and Hughes clear Prophecy’s books of the
Clearview investment in advance of Prophecy’s 2018 audit by engaging in another set of
complex fraudulent transactions.  The below diagram illustrates this round-trip transaction:

122. Specifically, on March 28, 2019, Prophecy “loaned” $21 million to Caiman
Partners (“Caiman”), an entity controlled by Kahn, which had no assets or operations.  The
following day, to assist Prophecy, Kahn wired this money, plus approximately $2.2 million of his
own funds, to Clearview Distribution Services LLC (“Clearview Distribution”), a newly created
entity controlled by Smith, for the purported purchase from Clearview of the defaulted loan
owed by Heckler.  Clearview Distribution wired the approximately $23.2 million it received
back to Prophecy the same day.
123. Prophecy represented to its auditor and administrator that the approximately $23.2
million payment received was for the redemption of the investment in Clearview.  In reality, as
known by Kahn, PAM, Spotts, and Hughes this was simply a complex series of transactions to
continue to hide Prophecy’s trading losses.  Going forward from March 2019, that loss was
masked as a new investment – a “loan” to Caiman partners.

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2. Broad Reach
124. By 2018, Prophecy had an investment valued on its books at approximately $24
million in Broad Reach.  Though Spotts claimed to at least one investor that Prophecy had full
transparency into the underlying investments of Broad Reach, this was false.  Broad Reach also
turned out to be a Ponzi-like, fraudulent scheme.
125. When Prophecy attempted to redeem its Broad Reach investment at the end of
2018, Smith informed Spotts and Hughes that Broad Reach was only able to make a partial
redemption of $6.5 million – leaving Prophecy with an approximate $17.5 million redemption
receivable.
126. By May 2019, with collectability of the receivable in doubt, with an institutional
investor seeking redemption of its investment in Prophecy, and in the midst of its 2018 audit,
PAM, Spotts, and Hughes again turned to Kahn to help fraudulently clear Prophecy’s books of
the impaired asset and conceal the related loss.
127. Specifically, in May 2019, Hughes emailed Kahn asking him to wire Prophecy
$17,579,885.15⸺the exact amount of the outstanding Broad Reach receivable.
128. Kahn sourced the funds needed from entities he controlled and routed the funds to
Kahn’s AGS Enterprises.  Kahn then, via multiple wire transfers, sent the exact amount
requested by Hughes to Prophecy.
129. The funds sourced by Kahn included approximately $444,000 and $580,000 of
capital from Special Opportunities (a fund structure launched by PAM in 2019) and Prophecy,
respectively, relating to purported investments in entities controlled by Kahn in the days leading
up to Kahn’s purchase of the Broad Reach interest.

28
130. On June 12, 2019, days after Kahn began making the AGS Enterprises’ payments
to Prophecy, Kahn emailed Hughes a one-page agreement backdated to April 1, 2019 titled
“Assignment of Limited Partnership Interest.”  This document purported to assign Prophecy’s
partnership interests in Broad Reach to AGS Enterprises.
131. PAM, Spotts, Kahn, and Hughes concealed Kahn’s involvement in this
transaction from Prophecy’s auditor and administrator.  In addition, Spotts and Hughes knew that
Prophecy’s limited partnership agreement with Broad Reach did not allow Prophecy to
unilaterally assign its partnership interests to a third party.
132. To overcome these hurdles, Kahn forged the signature of his then 13 year-old son
on the document, using his son’s first and middle name but omitting his last name; and Spotts
and Hughes altered the limited partnership agreement before sending it to Prophecy’s auditors in
such a way that purportedly allowed Prophecy to assign its limited partnership interest in Broad
Reach.
133. On June 17, Spotts emailed Prophecy’s auditor concerning the Broad Reach
redemption, falsely stating “[w]hile we redeemed for 12/31/18, we received the proceeds plus
interest during the interim.”  Spotts supported this assertion by sending what appeared to be a
Broad Reach account statement indicating Prophecy was fully redeemed by April 2019.  But
Spotts knew, or was reckless in not knowing, that this was false.  The cash received from
Prophecy was actually provided by Kahn to “purchase” the worthless Broad Reach receivable.
134. After Smith was charged by the Commission in August 2019 and arrested by law
enforcement in connection with the criminal case, at least one investor recalled that Prophecy
had invested in Broad Reach.  The investor contacted Spotts to inquire whether Prophecy had
suffered a loss in Broad Reach.  On August 27, Spotts replied with false assurances that “[w]e

29
are not in that fund” and “[w]e are not impaired by this event.”  Spotts knew or was reckless in
not knowing that his representations to the investor were false and/or misleading.
3. Vintage Capital Management LLC
135. Although Kahn had a cash collateral deficit in excess of $50 million during the
fall of 2018, Prophecy provided a $36 million unsecured loan to Vintage Capital Management
LLC (“Vintage”), an asset management company controlled by Kahn.
136. Spotts and Hughes did not do this transaction for the benefit of Prophecy or its
investors.  Instead, they understood that Kahn was going to use the loan proceeds to provide
rescue financing to a company in which Vintage was heavily invested.  Prophecy included this
new “allocation” on the December 2018 Portfolio Breakdown Report sent to investors as
“Manager 33,” masking that it was going to a Kahn-controlled entity.
137. Spotts and Hughes also failed to disclose the true nature of this large off-platform
loan to investors, falsely classifying it as a “Fixed Income” trading strategy on the Portfolio
Breakdown Report.
138. By December 2018, the Prophecy loan to Vintage had matured and Kahn failed to
repay the loan.  During Prophecy’s 2018 audit, rather than acknowledge to its auditor that the
loan had defaulted and was uncollectable, Kahn, Spotts, and Hughes devised a plan to enter into
a series of complex sham transactions to conceal the failed loan.
139. Kahn told Hughes that he was receiving money from another source and would
temporarily pay the $36 million loan, but needed the money he paid immediately returned.
140. Specifically, on or about April 25 and 26, 2019, PAM, Spotts, Hughes, and Kahn
engaged in a round-trip transaction designed to deceive Prophecy’s auditors.

30
141. On April 25, Kahn received $25 million into a Vintage account from a third-party.
A few minutes later, the same account wired $25 million to Prophecy.  Later that day, the same
Vintage account sent an additional $2.5 million to Prophecy.  The following morning, April 26,
the same Vintage account sent another $8.5 million to Prophecy, resulting in a total of $36
million being sent to Prophecy over the two days.
142. However, on the morning of April 26, PAM, Spotts, and Hughes caused Prophecy
to send the $36 million back to Kahn as purported “investments” in two Kahn-controlled entities,
wiring $17 million to Vintage Tributum LP and $19 million to Vintage Panther LP.
143. While the parties documented the purported investments, the investments did not
exist and the documents were created only to make it appear as though the original loan had been
repaid.
144. When Spotts and Hughes were questioned by Prophecy’s auditor about the source
of the Vintage loan repayment, Hughes intentionally misled the auditor, stating in an email, and
copying Spotts, that no additional loans were exchanged with Vintage or any affiliated entities of
Kahn for the collection of the $36 million loan.
4. Samjor LP
145. By year-end 2019, Kahn’s trading losses had increased.  However, PAM, Spotts,
and Hughes made no effort to collect on this debt, which Prophecy designated a receivable on its
balance sheet, through the purported non-cash collateral that Kahn had pledged to secure the
receivable.
146. Spotts and Hughes became concerned that Prophecy’s auditor and administrator
would further scrutinize the validity of the non-cash collateral pledged by Kahn.

31
147. To relieve this concern, Spotts, Kahn, and Hughes determined that the receivable
Kahn owed would need to be replaced with a different “asset.”
148. Subsequently, Kahn formed a limited partnership called Samjor LP (“Samjor”).
According to the Samjor partnership agreement, Kahn was to initially capitalize the partnership
by contributing $194 million worth of shares of a publicly traded company for which Kahn
served as CEO, and Samjor would issue the lone limited partnership interest in the fund to
Prophecy.  In so doing, the receivable owed by Kahn on Prophecy’s balance sheet would be
exchanged for a new limited partnership investment in Samjor.
149. However, Kahn failed to contribute the shares to the partnership as agreed,
rendering worthless the limited partnership interest issued to Prophecy because Samjor had zero
assets.  Although Spotts and Hughes knew, or were reckless in not knowing, that Kahn never
funded the Samjor partnership with publicly traded securities, Prophecy reported this transaction
to its administrator as a new “fund investment” worth $194 million.
150. In order to finalize Prophecy’s net asset value for the month, Prophecy’s
administrator requested from Hughes a statement issued by Samjor to confirm the value of the
investment.  Hughes passed along the request to Kahn, and Kahn then issued a fabricated
account statement to Prophecy’s administrator indicating that Prophecy’s investment in Samjor
was valued at $194 million as of December 31, 2019 and January 31, 2020, despite knowing that
Samjor had no assets.

32
F. Special Opportunities
151. In April 2019, PAM launched Special Opportunities.  Similar to Prophecy, Spotts
raised capital for the funds and communicated with Special Opportunities’ investors and
prospective investors, and Hughes oversaw the back-office and risk management operations.
152. Pursuant to its offering materials, Special Opportunities purportedly allocated
capital to a smaller group of sub-advisers that were selected due to their past success.  However,
unlike Prophecy, Special Opportunities did not purport to have a first-loss component.  Instead,
investors stood to receive a higher percentage of any trading profits generated by the sub-
advisers.
153. Spotts and Hughes caused PAM to provide a fact sheet to investors stating that
Special Opportunities’ “assets are allocated primarily across liquid discretionary and systematic
equity long/short strategies that have a non-market risk/asymmetrical return profile, liquidity of
the underlying instruments, prior history with Prophecy, quality of operational infrastructure and
ability to produce consistent returns.”
154. Spotts and Hughes knew, or were reckless in not knowing, that the representations
regarding Special Opportunities were false.  Instead of investing the capital provided by
investors in proven investment strategies as it had represented, Special Opportunities allocated
millions of dollars to Prophecy in the form of undocumented, unsecured loans, and to Kahn in
the form of investments in entities under his control.
155. According to Special Opportunities’ March 2020 “investment schedule,” of the
$47.5 million of assets held, almost $18 million had been loaned to Prophecy, and another
approximately $19 million was invested in entities controlled by Kahn.

33
156. PAM, Spotts, and Hughes caused Special Opportunities to make these loans and
investments at a time when they knew Prophecy was imploding due to Kahn’s massive trading
losses, lack of adequate collateral, and inability to repay his obligations.
157. The capital allocated to Prophecy appears to have been used to purportedly
provide first-loss cash deposits for certain sub-advisers whose trading profits would be split with
Special Opportunities.  But those funds were never segregated in a bank account overseen by the
administrator and were largely transferred to prime brokerage accounts held by Prophecy.
Moreover, Kahn round-tripped some of the money allocated to him back to Prophecy in order to
conceal other investment losses, including losses arising from Prophecy’s investment in Broad
Reach.
G. The Fraud Unravels
158. In a letter to investors dated March 31, 2020, Spotts disclosed that Prophecy’s
auditor had resigned and withdrawn its opinion and that PAM had suspended all redemptions for
Prophecy and Special Opportunities.
H. Defendants Violated the Federal Securities Laws
159. During the relevant period, PAM, Spotts, Kahn, and Hughes perpetrated a
fraudulent scheme.
160. In perpetrating the fraud, Defendants used the means or instruments of interstate
commerce or of the mails, or the facility of a national securities exchange, including by
communicating false statements and sending fabricated documents through emails.
161. All of the misrepresentations and omissions set forth herein, individually and in
the aggregate, are material.

34
162. Defendants engaged in deceptive conduct, including, but not limited to, lying to
and deceiving Prophecy’s auditors, creating false documents purporting to show that Kahn had
posted adequate collateral to cover his massive trading losses, forging signatures on documents,
and, on multiple occasions, entering into sham and round-trip transactions.
163. PAM, Spotts, and Kahn acted knowingly and/or recklessly while engaging in
deceptive conduct.
164. PAM and Spotts made material misrepresentations and omitted stating material
facts necessary to make other material statements not misleading to investors and prospective
investors in connection with the purchase, sale, or offering of securities.
165. PAM and Spotts acted knowingly and/or recklessly in making material
misrepresentations and omitting material facts.
166. All of the misrepresentations and omissions set forth herein, individually and in
the aggregate, are material.
167. PAM and Spotts had ultimate authority for false and misleading statements and
omissions made orally and in writing to investors and prospective investors in Prophecy offering
materials and other communications to investors.
168. Through this scheme, Defendants employed a device, scheme or artifice to
defraud and engaged in acts, transactions or courses of business that operated as a fraud or deceit
upon investors and/or clients.
169. The conduct described herein was in connection with the purchase, sale, or
offering of securities.
170. PAM, Spotts, and Kahn acted as investment advisers during the relevant period by
providing investment advisory services for a fee.

35
171. PAM, Spotts, and Kahn provided investment advisory services to pooled
investment vehicles, Prophecy and Special Opportunities.
172. In connection with the conduct described herein, PAM, Spotts, and Kahn
breached the fiduciary duty they owed to their investment advisory clients.
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
Violations of Section 17(a) of the Securities Act
(Defendants PAM and Spotts)

173. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein.
174. By engaging in the conduct alleged herein, PAM and Spotts, in the offer or sale of
securities, directly or indirectly, singly or in concert, by the use of the means or instruments of
transportation or communication in interstate commerce, or the means or instrumentalities of
interstate commerce, or the mails, or the facilities of a national securities exchange:
a. knowingly or recklessly employed devices, schemes or artifices to defraud;

b. knowingly, recklessly, or negligently obtained money or property by means
of, or made, untrue statements of material fact, or omitted to state material facts necessary in order
to make the statements made, in light of the circumstances under which they were made, not
misleading; and/or

c. knowingly, recklessly, or negligently engaged in acts, transactions, practices,
or courses of business that operated as a fraud or deceit upon offerees, purchasers, and prospective
purchasers of securities.

175. By engaging in the foregoing conduct, PAM and Spotts violated, and unless
restrained and enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. §
77q(a)].

36

SECOND CLAIM FOR RELIEF
Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act
(Defendant Kahn)

176. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if they were fully set forth herein.
177. By engaging in the conduct alleged herein, Kahn directly or indirectly, singly or
in concert, by the use of the means or instruments of transportation or communication in
interstate commerce, or the means or instrumentalities of interstate commerce, or the mails, (1)
knowingly or recklessly employed devices, schemes or artifices to defraud; and/or (2)
knowingly, recklessly, or negligently engaged in acts, transactions, practices, or courses of
business that operated as a fraud or deceit upon offerees, purchasers, and prospective purchasers
of securities.
178. By reason of the foregoing, Kahn violated, and unless restrained and enjoined will
continue to violate, Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1)
and 77q(a)(3)].
THIRD CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder
(Defendants PAM and Spotts)
179. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein.
180. By engaging in the conduct alleged herein, PAM and Spotts directly or indirectly,
by use of the means or instruments of interstate commerce or of the mails, or the facility of a
national securities exchanges, in connection with the purchase and sale of securities described
herein, knowingly or recklessly:
a. employed devices, schemes, or artifices to defraud;

37

b. made untrue statements of material facts and omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading; and/or

c. engaged in acts, practices, and courses of business which operated or would
operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

181. By reason of the foregoing, PAM and Spotts, directly and indirectly, violated and,
unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]
and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

FOURTH CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act and
Rules 10b-5(a) and 10b-5(c) thereunder
(Defendant Kahn)

182. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein.
183. By engaging in the conduct alleged herein, Kahn directly or indirectly, by use of
the means or instruments of interstate commerce or of the mails, or the facility of a national
securities exchanges, in connection with the purchase and sale of securities described herein,
knowingly or recklessly: (a) employed devices, schemes, or artifices to defraud; and/or (b)
engaged in acts, practices, and courses of business which operated or would operate as a fraud or
deceit upon any person, in connection with the purchase or sale of any security.
184. By reason of the foregoing, Kahn, directly and indirectly, violated and, unless
enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and
Rules 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)].

38
FIFTH CLAIM FOR RELIEF
Violations of Section 206(1) and (2) of the Advisers Act
(All Defendants)

185. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein.
186. At all relevant times, PAM, Spotts, and Kahn were investment advisers under
Advisers Act Section 202(11) [15 U.S.C. § 80b-2(11)].
187. By engaging in the conduct alleged herein, PAM, Spotts, and Kahn, by use of the
mails or any means or instrumentality of interstate commerce, directly or indirectly:
a. knowingly or recklessly employed devices, schemes or artifices to defraud
any client or prospective client; and/or

b. knowingly, recklessly, or negligently engaged in transactions, practices, or
courses of business which operated or would operate as a fraud or deceit upon any client or
prospective client.

188. By engaging in the foregoing conduct, PAM, Spotts, and Kahn violated, and
unless restrained and enjoined will continue to violate, Sections 206(1) and (2) of the Advisers
Act [15 U.S.C. §§ 80b-6(1) and (2)].
SIXTH CLAIM FOR RELIEF
Violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder
(PAM and Spotts)

189. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein.
190. At all relevant times, PAM and Spotts were investment advisers under Advisers
Act Section 202(11) [15 U.S.C. § 80b-2(11)] to a pooled investment vehicle, as defined in Rule
206(4)-8(b) [17 C.F.R. § 275.206(4)-8(b)].
191. PAM and Spotts, by engaging in the conduct alleged herein, by use of the mails or
any means or instrumentality of interstate commerce, directly or indirectly, knowingly,

39
recklessly, or negligently: (a) made one or more untrue statements of material fact or omitted to
state one or more material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading, to any investor or prospective
investor in the pooled investment vehicle; and/or (b) engaged in one or more acts, practices, or
courses of business that were fraudulent, deceptive, or manipulative, with respect to any investor
or prospective investor in the pooled investment vehicle..
192. By reason of the foregoing, PAM and Spotts violated and, unless restrained and
enjoined, will continue to violate Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and
Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].
SEVENTH CLAIM FOR RELIEF
Violations of Section 206(4) of the Advisers Act and Rule 206(4)-8(a)(2) thereunder
(Defendant Kahn)

193. The Commission re-alleges and incorporates by reference each and every
allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein.
194. At all relevant times, Kahn was an investment adviser under Advisers Act Section
202(11) [15 U.S.C. § 80b-2(11)] to a pooled investment vehicle, as defined in Rule 206(4)-8(b)
[17 C.F.R. § 275.206(4)-8(b)].
195. Kahn, by engaging in the conduct alleged herein, by use of the mails or any
means or instrumentality of interstate commerce, directly or indirectly, knowingly, recklessly, or
negligently engaged in one or more acts, practices, or courses of business that were fraudulent,
deceptive, or manipulative, with respect to any investor or prospective investor in the pooled
investment vehicle.

40
196. By reason of the foregoing, Kahn violated and, unless restrained and enjoined,
will continue to violate Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule
206(4)-8(a)(2) thereunder [17 C.F.R. § 275.206(4)-8(a)(2)].
PRAYER FOR RELIEF
 WHEREFORE, the Commission respectfully requests that this Court enter a final
judgment:
I.
 Permanently restraining and enjoining PAM, Spotts, and Kahn from, directly or
indirectly, violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the
Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and
Sections 206(1), (2), and (4) of the Advisers Act [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule
206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].
II.
Ordering PAM and Spotts to disgorge all ill-gotten gains or unjust enrichment with
prejudgment interest, to effect the remedial purposes of the federal securities laws.
III.
Ordering PAM. Spotts, and Kahn to pay civil penalties pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C.
§ 78u(d)(3)], and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)]

41
IV.
Barring Spotts and Kahn from serving as an officer or director of a public company
pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)], Section 21(d)(2) of the
Exchange Act [15 U.S.C. § 78u(d)(2)]; and
V.
 Granting such other and further relief as this Court may determine to be just and
necessary.
JURY DEMAND
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff demands that this
case be tried to a jury.

Respectfully submitted,

     By: s/John V. Donnelly III
John V. Donnelly III
Gregory Bockin
Julia C. Green
 Securities and Exchange Commission
 1617 JFK Blvd., Suite 520
 Philadelphia, PA 19103
 Telephone: (215) 597-3100
 Facsimile: (215) 597-2740
 Email:  [email protected]

ATTORNEYS FOR PLAINTIFF
SECURITIES AND EXCHANGE
COMMISSION
Dated: September 29, 2025

42
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

SECURITIES AND EXCHANGE COMMISSION,

  Plaintiff,

 v.

PROPHECY ASSET MANAGEMENT LP,
JEFFREY SPOTTS and BRIAN KAHN

  Defendant.

Case No.

DESIGNATION OF AGENT
FOR
 SERVICE

 Pursuant to Local Rule 101.1(f), because the Securities and Exchange Commission (the
“Commission”) does not have an office in this district, the United States Attorney for the District
of New Jersey is hereby designated as eligible as an alternative to the Commission to receive
service of all notices or papers in the captioned action.  Therefore, service upon the United States
or its authorized designee, David Dauenheimer, Deputy Chief, Civil Division, United States
Attorney’s Office for the District of New Jersey, 970 Broad Street, 7th Floor, Newark, NJ 07102
shall constitute service upon the Commission for purposes of this action.

Respectfully submitted,
s/ John V. Donnelly III
John V. Donnelly III

Attorney for Plaintiff
U.S. Securities and Exchange Commission
Philadelphia Regional Office
1617 JFK Boulevard, Suite 520
Philadelphia, PA  19103
 Telephone: (215) 597-3100
 Facsimile: (215) 597-2740
[email protected]

IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF NEW JERSEY 

 
 
SECURITIES AND EXCHANGE 
COMMISSION, 

: 
: 
: 

 
 

 
Plaintiff, 

: 
: 

Civil Action No. 3:25-cv-16058 
  

v. : 
: 

Complaint for Violations of the 
Federal Securities Laws 

 
PROPHECY ASSET MANAGEMENT, LP, 
JEFFREY SPOTTS, and BRIAN KAHN,  

 
Defendants. 

:
:
:
:
: 

 
Jury Trial Demanded 
 
 
 

 :  
 
 Plaintiff Securities and Exchange Commission (the “Commission”) alleges as follows 

against defendants:  Prophecy Asset Management, LP (“PAM”), whose last known address is 641 

Lexington Avenue, New York, NY 10022; Jeffrey Spotts (“Spotts”), whose last known address is 

508 Jefferson Street, Whitehall, PA 18052; and Brian Kahn (“Kahn”), whose last known address is 

9935 Lake Louise Drive, Windermere, FL 34786 (collectively, “Defendants”): 

SUMMARY 

1. This case involves a multi-year investment adviser fraud orchestrated by PAM, 

Spotts, Kahn, and John Hughes (“Hughes”), which caused investors to lose more than $350 

million.   

2. Spotts and Hughes controlled PAM, formerly a registered investment adviser that 

managed several funds (collectively referred to herein as “Prophecy” and “Special 

Opportunities”), and Kahn was the largest sub-adviser for the funds. 

3. Between 2014 and March 2020, PAM, Spotts, and Hughes raised more than $500 

million from investors who invested in Prophecy and Special Opportunities and collected in 

excess of $15 million in management and incentive fees. 

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4. Together, PAM, Spotts, Kahn, and Hughes deceived Prophecy’s investors, 

prospective investors, auditors, and administrator about its “first loss” business model that 

purportedly allocated Prophecy’s capital to dozens of sub-advisers who were required to trade in 

liquid securities and post cash collateral to absorb losses generated by their trading strategies. 

5. In reality, PAM, Spotts, and Hughes allocated the vast majority of Prophecy’s 

capital to Kahn, who incurred massive trading losses far exceeding the amount of cash collateral 

he had contributed to Prophecy.   

6. In addition, contrary to what they told investors, PAM, Spotts, and Hughes caused 

Prophecy to spend investor funds on risky, highly illiquid investments, including investments 

into Kahn entities, for which PAM performed little to no due diligence, resulting in substantial 

additional losses to Prophecy. 

7. To conceal these hundreds of millions of dollars in losses, PAM, Spotts, Kahn, 

and Hughes used fabricated documents showing that Kahn posted adequate collateral and 

engaged in a series of sham transactions to inflate the apparent value of Prophecy’s assets and 

conceal the true financial condition of Prophecy. 

8. At the same time, PAM, Spotts, and Hughes provided investors and prospective 

investors account statements, “fact sheets,” and other promotional and due diligence materials 

misrepresenting that Prophecy was diversified, liquid and secured by cash collateral, and 

generated positive returns every month.  

9. PAM, Spotts, Kahn, and Hughes further perpetrated their fraud with Special 

Opportunities, which purported to give investors access to certain preferred trading strategies 

identified by PAM.  However, when investors invested in Special Opportunities, the majority of 

their money was simply transferred back to Prophecy or invested in entities controlled by Kahn.   

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10. The actions of PAM, Spotts, Kahn, and Hughes painted an inaccurate picture of 

Prophecy’s and Special Opportunities’ financial health by hiding losses and impaired assets, 

which, in turn, inflated the value of the funds and generated excessive management and incentive 

fees to PAM, Spotts, and Hughes.   

11. By the end of March 2020, although Prophecy had never told investors it had lost 

money for even a single quarter, Prophecy’s actual losses exceeded $350 million.  Prophecy’s 

auditor then withdrew its 2018 audit opinion and resigned, and PAM, Spotts, and Hughes gated 

Prophecy and Special Opportunities, indefinitely suspending redemptions by investors.   

12. By engaging in the conduct described in this Complaint, PAM and Spotts 

violated, directly or indirectly, and unless enjoined will continue to violate, Section 17(a) of the 

Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities 

Exchange Act of 1934 (“Exchange Act” [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 

C.F.R. § 240.10b-5]; and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 

(“Advisers Act”) [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-8 thereunder [17 C.F.R. 

§ 275.206(4)-8] 

13. By engaging in the conduct described in this Complaint, Kahn violated, directly 

or indirectly, and unless enjoined will continue to violate, Section 17(a)(1) and (3) of the 

Securities Act [15 U.S.C. §§ 77q(a)(1) and (3)]; Section 10(b) of the Exchange Act [15 U.S.C. 

§ 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]; and Sections 

206(1), (2), and (4) of the Advisers Act [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-

8(a)(2) thereunder [17 C.F.R. § 275.206(4)-8(a)(2)].   

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JURISDICTION AND VENUE 

14. The Commission brings this action pursuant to Sections 20(b) and 20(d) of the 

Securities Act [15 U.S.C. §§ 77t(b), (d)], Sections 21(d) and 21(e) of the Exchange Act [15 

U.S.C. §§ 78u(d), (e)], and Sections 209(d) and 209(e) of the Advisers Act [15 U.S.C. §§ 80b-

9(d), (e)] to enjoin such acts, practices, and courses of business, and to obtain disgorgement with 

prejudgment interest, civil money penalties, an officer and director bar, and such other and further 

relief the Court may deem just and appropriate.  

15. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d), and 

22(a) of the Securities Act [15 U.S.C. §§ 77t(b), (d), and 77v(a)]; Sections 21(d), 21(e), and 27 

of the Exchange Act [15 U.S.C. §§ 78u(d), (e), and 78aa]; and Sections 209(d), 209(e), and 214 

of the Advisers Act [15 U.S.C. §§ 80b-9(d), (e), 80b-14].  Defendants, directly or indirectly, 

made use of the mails, or the means and instrumentalities of interstate commerce, or the facility 

of national security exchanges, in connection with the transactions, acts, practices, and courses of 

business alleged in this Complaint. 

16. Venue in this district is proper pursuant to Section 22(a) of the Securities Act [15 

U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. § 78aa], Section 214 of the 

Advisers Act [15 U.S.C. § 80b-14], and 28 U.S.C. § 1391(b), because certain acts, practices, 

transactions, and courses of business constituting violations of the federal securities laws 

occurred within the District of New Jersey.  For example, in connection with the fraud, during 

the relevant time period, Spotts and Hughes conducted business from their respective homes in 

New Jersey.  As PAM operated through them, PAM too conducted business in this District.  In 

addition, Kahn sent and/or caused to be sent, wire transmissions that went through servers 

located in New Jersey, including fabricated documents sent to Hughes at his home in New 

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Jersey.   

DEFENDANTS 

17. PAM is a Delaware limited partnership and was a registered investment adviser 

established in 2001.  PAM provided investment advisory services to the investment funds 

defined below.  PAM’s registration status with the Commission was cancelled on July 5, 2023. 

18. Spotts, age 58, currently resides in Pennsylvania.  During the relevant period, he 

was a 50% co-owner of PAM and, along with Hughes, had authority over all uses of investor 

capital invested in the investment funds defined below.  During the relevant period, Spotts 

resided in and worked from his home in Summit, New Jersey. 

19. Kahn, age 52 resides in Florida.  During the relevant period, he controlled several 

entities that traded the investment funds’ capital or to which the investment funds loaned their 

capital.       

RELEVANT INDIVIDUAL AND ENTITIES 

20. John Hughes, age 58, resides in Mahwah, New Jersey.  During the relevant 

period, Hughes was a 50% co-owner of PAM and, along with Spotts, had authority over all uses 

of investor capital invested in the investment funds defined below.  On November 2, 2023, the 

Commission charged Hughes with securities fraud for his participation in the scheme described 

in this Complaint.  Hughes was also charged criminally for the same conduct and pled guilty to 

conspiracy to commit securities fraud. 

21. “Prophecy,” as used herein, refers collectively to the following investment funds: 

Prophecy Trading Advisors Master Fund LP; Prophecy Trading Advisors LP; and Prophecy 

Trading Advisors International LTD.  On March 31, 2020, PAM, Spotts, and Hughes caused 

Prophecy to suspend investor redemptions and the payment of investor redemptions.    

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22. During the relevant period, Prophecy Trading Advisors Master Fund LP (“Master 

Fund”), a Cayman Islands limited partnership established in 2018, operated as a purported hedge 

fund. 

23. During the relevant period, Prophecy Trading Advisors LP (“PTA”), a Delaware 

limited partnership established in 2011, operated as a purported hedge fund.    

24. During the relevant period, Prophecy Trading Advisors International LTD (“PTA 

International”), a British Virgin Islands limited company established in 2012, operated as a 

purported hedge fund.  

25. “Special Opportunities,” as used herein, refers collectively to the following 

investment funds: Prophecy Special Opportunities Fund LP and Prophecy Special Opportunities 

Fund International LTD.   

26. During the relevant period, Prophecy Special Opportunities Fund LP, a Delaware 

limited partnership established in 2018, operated as a purported hedge fund. 

27. During the relevant period, Prophecy Special Opportunities Fund International 

LTD, a British Virgin Islands limited company established in 2018, operated as a purported 

hedge fund. 

28. During the relevant period, Vintage Capital Management LLC (“Vintage”) was an 

asset management company controlled by Kahn. 

29. During the relevant period, Samjor Family LP was an asset management company 

controlled by Kahn. 

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  FACTS 

A. Background  
 

30. In 2001, Spotts founded PAM, which became an SEC-registered investment 

adviser on May 9, 2012.  Spotts was PAM’s Chief Executive Officer and Chief Investment 

Officer.  His primary duties included raising capital for Prophecy, communicating with investors 

and prospective investors, and identifying and selecting sub-advisers. 

31. Hughes joined PAM in 2006.  He served as PAM’s President and Chief 

Compliance Officer, oversaw the back-office and risk management operations for PAM, and, 

along with Spotts, selected sub-advisers. 

32. At all relevant times after Hughes joined PAM in 2006, Hughes and Spotts jointly 

ran and controlled PAM, and each were involved in, and agreed to, major decisions concerning 

Prophecy’s operations. 

33. PAM was the investment adviser to Prophecy, which originally consisted of PTA 

and eventually included PTA International and the Master Fund.  In July 2018, Prophecy 

transitioned to a master-feeder structure, converting both PTA and PTA International into feeder 

funds that invested all the capital in the newly created Master Fund, where all investment activity 

took place.   

34. From its inception, at the direction of Spotts and Hughes, through PAM, Prophecy 

operated a “first-loss” business model purportedly to minimize the risk of loss to investors.  

Under this model, PAM claimed to allow a diverse group of sub-advisers to use Prophecy’s 

capital to implement their own trading strategies in liquid securities and share the profits with 

Prophecy.  To protect Prophecy’s capital, PAM purportedly required sub-advisers to “post” cash 

collateral by depositing cash in an account controlled by a third-party to absorb any losses 

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8 

generated by their trading strategies.  Typically, PAM required sub-advisers to post 10% of the 

agreed upon trading allocation as cash collateral to be available to cover possible losses.   

35. PAM also purportedly required sub-advisers to use Prophecy’s execution 

management system, a trading platform wherein Prophecy would allocate capital to the sub-

advisers, who then traded the capital in prime brokerage accounts held by Prophecy.   

36. The trading platform purportedly allowed PAM to manage risk by actively 

monitoring the overall portfolio and the performance and liquidity of each trading strategy and 

ensuring that each sub-adviser maintained adequate cash collateral relative to their exposure. 

37. PAM and Spotts claimed that if a sub-adviser’s losses exceeded their posted cash-

collateral, PAM would cut off the sub-adviser’s trading until the sub-adviser provided additional 

cash collateral. 

38. Sub-advisers enjoyed the benefits of leveraged trading capital provided by 

Prophecy’s prime brokers and back-office support from Prophecy in return for the payment of a 

monthly administrative fee and a percentage of any trading profits generated.  In exchange for 

their agreement to pay the administrative fee and absorb trading losses up to the amount of their 

cash deposit, PAM permitted the sub-advisers to keep a larger percentage (as compared to 

industry standards) of their trading profits, typically 80% or more. 

39. PAM entered into an Account Investment Advisory Agreement (“Advisory 

Agreement”) with each sub-adviser, including Kahn (via certain entities he controlled), to 

memorialize certain terms, including the amount of capital to be allocated to the sub-adviser for 

trading, administrative fees, profit split percentages, and the amount of cash collateral to be 

posted by the sub-adviser.   

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40. The Advisory Agreement indicated that all collateral posted by the sub-adviser 

was to be segregated in a separate bank account controlled by Prophecy’s administrator and used 

to offset any trading losses incurred by that sub-adviser.  PAM, Spotts, and Hughes frequently 

provided an example Advisory Agreement to investors for due diligence purposes.   

41. To induce investments in the funds, PAM, Spotts, and Hughes, through marketing 

documents for the funds, represented that the combination of a lower profit split to Prophecy, the 

monthly administrative fees collected from all sub-advisers, and the insurance against trading 

losses afforded by each sub-adviser’s cash deposit purportedly created a steady stream of mid to 

high single-digit returns uncorrelated to market conditions or the performance of the sub-

advisers.   

42. Conceptually, if Prophecy allocated $1 million for a sub-adviser to trade, that sub-

adviser should post $100,000 in cash in an account controlled by Prophecy’s administrator.  If 

the sub-adviser sustained losses, $20,000 for example, Prophecy could use the cash on deposit to 

cover the losses and reduce the capital available to the sub-adviser to trade until the collateral 

was replenished.  In this way, Prophecy theoretically would not suffer any losses.  According to 

representations made by PAM, if a sub-adviser’s losses absorbed 50% or more of their cash 

collateral, PAM would stop the sub-adviser’s trading and require additional collateral or a 

reduction in exposure.   

43. In short, Prophecy was supposed to be monitoring sub-advisers trading in real 

time and was supposed to step in to mitigate risk and limit losses to the cash collateral provided 

by a sub-adviser. 

44. PAM, Spotts, and Hughes collectively represented to investors and prospective 

investors in written materials and orally that Prophecy followed this first-loss business model. 

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B. PAM, Spotts, and Hughes Misrepresented Prophecy’s Business Model to 
Investors and Prospective Investors 
 

45. The premise of steady, single-digit returns protected against loss promoted to 

investors and potential investors by PAM, Spotts, and Hughes, was based on their 

misrepresentations that described active risk management where sub-advisers were purportedly 

routinely monitored with respect to diversification, cash collateral, and liquidity of trading 

strategies.  In reality, PAM, Spotts, and Hughes knew or were reckless in not knowing that these 

representations they made about monitoring, diversification, collateral, and liquidity were false 

or misleading.        

1. Misrepresentations Regarding Sub-Adviser Diversification  

46. In written materials and/or orally, PAM, Spotts, and Hughes touted sub-adviser 

diversification as a key aspect of Prophecy’s purported first-loss trading strategy because it 

minimized concentration risk.  In other words, the risk to Prophecy would be reduced by 

avoiding over-exposure to a single sub-adviser.  Thus, even if one sub-adviser incurred losses 

exceeding the balance of their cash deposit, the funds being managed by other sub-advisers 

would not be impacted.   

47. PAM, Spotts, and Hughes represented to investors and prospective investors that 

Prophecy’s capital was allocated to dozens of sub-advisers employing multiple diverse and even 

“unique” trading strategies.  For example, PAM distributed monthly “fact sheets” to investors 

stating that Prophecy “seeks to generate returns by making notional allocations to a diverse 

group of sub-advisers running a variety of discretionary, systematic and unique investment 

strategies.” 

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48. Similarly, PAM, Spotts, and Hughes provided investors and prospective investors 

a Due Diligence Questionnaire, which stated that Prophecy has “a diversified sub-adviser 

platform.” 

49. In meetings and phone conversations, Spotts told prospective investors that 

diversification of sub-advisers helped minimize concentration risk.   

50. However, PAM, Spotts, and Hughes knew, or were reckless in not knowing—and 

concealed from investors—that from at least 2017 through March 2020, the majority of 

Prophecy’s assets were allocated to Kahn or Kahn-controlled entities for purposes of trading. 

51. PAM, Spotts, and Hughes received monthly Portfolio Breakdown Reports, which 

were internal reports that identified each sub-adviser by name, including Kahn, and listed their 

allocation amounts. 

52. In December 2018, PAM began circulating these monthly Portfolio Breakdown 

Reports to investors and prospective investors but anonymized each sub-adviser as “Manager 1”, 

“Manager 2”, etc.   

53. The Portfolio Breakdown Reports concealed Prophecy’s massive concentration in 

Kahn by presenting his total allocation as if Kahn were multiple, individualized sub-advisers. 

54. For example, the December 2018 report listed 33 sub-advisers and identified them 

merely as Manager 1 through Manager 33.  Unbeknownst to investors, six of the 33 sub-advisers 

were controlled by Kahn, who had been allocated approximately 78% of Prophecy’s more than 

$1 billion in leveraged capital available for trading.   

2. Misrepresentations Regarding Kahn’s Cash Collateral 
 

55. PAM, Spotts, and Hughes distributed offering and marketing documents that also 

stated that Prophecy protected its capital from losses by holding cash collateral contributed by 

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each sub-adviser.  PAM represented that if a sub-adviser’s losses absorbed 50% or more of its 

cash collateral deposit, PAM would stop the sub-adviser’s trading and require additional 

collateral or a reduction in exposure. 

56. For example, the Due Diligence Questionnaire provided to potential investors 

specifically stated that allocations to sub-advisers “are supported by cash deposits provided by 

each sub-adviser.  The deposits serve as the primary downside risk protection for the fund.”  The 

Due Diligence Questionnaire further boasted that Prophecy’s “‘edge’ is that each sub-adviser is 

accountable for losses from their strategy and must supply capital to a third-party deposit account 

or similar collateral structure.  This deposit is used to offset any losses.”   

57. Further, Prophecy’s 2017 audited financial statements, which were provided to at 

least some investors, stated that Prophecy maintains contractual agreements that required each 

sub-adviser “to deposit their own capital into a separate bank account managed by the Fund 

administrator.  . . . Sub-advisers agree to absorb their trading losses by reimbursing the Fund 

from the deposited capital.”  In addition, on calls and/or in-person meetings with investors and 

prospective investors, Spotts represented that Prophecy required cash deposits equal to 10% of a 

sub-adviser’s trading allocation to absorb any trading losses incurred.   

58. Since at least 2018, Prophecy’s cash collateral deposits fell well short of the stated 

10% of sub-adviser allocations.  Prophecy, Spotts, and Hughes knew, or were reckless in not 

knowing, that Prophecy’s cash collateral deposits were short of the stated 10% of sub-adviser 

allocations. 

59. For example, as of January 2019, Prophecy’s total cash deposit balance equaled a 

mere 0.77% of the reported gross market value of its assets.  By July 2019, Prophecy’s cash 

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13 

deposit balance dipped even lower, to 0.05%.  PAM, Spotts, and Hughes knew, or were reckless 

in not knowing, that Prophecy’s cash collateral deposits were well short of the 10% mark. 

60. PAM, Spotts, and Hughes allowed Prophecy to all but abandon its cash deposit 

requirement for Kahn, notwithstanding Kahn’s outsized allotment of Prophecy’s trading capital 

and enormous trading losses.   

61. For instance, Kahn’s trading losses exceeded the amount of the cash collateral 

Kahn had contributed by: $55 million in September 2018; $216 million in November 2019; and 

$328 million in March 2020. 

62. At all times, PAM, Spotts, and Hughes were aware of Kahn’s trading losses and 

related cash deposit deficits because they were provided monthly reports indicating each sub-

advisers’ profit and loss and cash deposit balances.  Spotts and Hughes also discussed Kahn’s 

trading losses in person and by phone.  Nevertheless, PAM, Spotts, and Hughes allowed Kahn to 

continue trading.    

63. Despite knowing of Kahn’s continually increasing cash collateral deficit and 

mounting trading losses, PAM, Spotts, and Hughes continued to falsely claim to investors that no 

sub-adviser had ever exhausted its cash collateral deposit. 

64. Kahn’s losses, which exceeded deposited capital, also meant that Prophecy 

suffered massive losses for which it had no mechanism to reasonably guarantee reimbursement.  

Yet Prophecy continued to claim it had experienced positive returns since its inception.  

65. Contrary to the representations of PAM, Spotts, and Hughes, Prophecy first had a 

sub-adviser exhaust their cash collateral in January 2014, when a sub-adviser lost nearly $3 

million of investor capital, an amount well in excess of his cash collateral.  At that time, in order 

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to avoid recording losses for Prophecy, PAM, Spotts, and Hughes caused Prophecy to enter into 

a series of sham transactions to conceal the loss. 

66. Despite that event and the continued losses of Kahn, PAM, Spotts, and Hughes 

continued to knowingly and/or recklessly mislead investors about Prophecy’s performance.  In 

an email dated Oct. 28, 2018, several weeks after Kahn exhausted his cash collateral deposit and 

his trading losses reached $55 million, Spotts wrote to investors: “No portfolio managers had a 

severe enough decline in the allocations to exhaust their deposit and impair the fund.”  Spotts 

knew or was reckless in not knowing that this was false.   

67. On May 2, 2019, PAM sent Prophecy’s largest investor a document containing 

information on each sub-adviser’s trading results and deposit balance which reflected that Kahn 

maintained a deposit balance of more than $36 million.  PAM, Spotts, and Hughes knew, or were 

reckless in not knowing, this information was false. 

68. Contrary to that representation, as of May 2, 2019, the bank account designated to 

hold cash collateral posted by all of Prophecy’s sub-advisers contained less than $10 million and 

internal records maintained by Prophecy indicated that Kahn had a cash collateral deficit on May 

2, 2019 of approximately $130 million. 

69. From January 2018 through March 2020, Kahn’s trading losses exceeded the 

balance of his cash collateral for all but one month. 

70. By February 2020, Kahn’s deposit balance deficit approached $200 million.  

Although PAM, Spotts, and Hughes knew, or were reckless in not knowing, that Kahn’s deposit 

balance had a massive deficit, Spotts emailed a prospective investor, falsely claiming “the fund is 

a pure first-loss strategy, with all allocations backstopped by collateral deposits.” 

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3. Misrepresentations Regarding Liquidity of Investments  
 

71. PAM’s offering documents were also replete with misrepresentations that 

Prophecy’s investments were concentrated in liquid securities traded on Prophecy’s platform.  

Spotts and Hughes knew or were reckless in not knowing that these were misleading statements. 

72. For example, the Due Diligence Questionnaire falsely stated that “[t]he majority 

of positions across the fund can be liquidated within one business day without significantly 

impacting prices.” 

73. During due diligence meetings with potential investors, Spotts represented that 

Prophecy’s sub-advisers traded in mainly highly liquid US equities on Prophecy’s trading 

platform, allowing PAM to monitor a sub-adviser’s trading activity and quickly liquidate 

positions if the losses breached the sub-adviser’s cash deposit.   

74. Spotts represented to at least one investor that although Prophecy would 

occasionally extend loans, or make direct investments in sub-advisers, which PAM referred to as 

“off-platform” investments, these strategies were for arbitrage-like trading with low downside 

and comprised less than 5% of Prophecy’s assets.  Spotts represented further that PAM 

maintained full transparency regarding the off-platform investments.  Spotts knew or was 

reckless in not knowing that this was false. 

75. Contrary to these representations, from 2018 through March 2020, PAM, Spotts, 

and Hughes routinely caused Prophecy to invest substantial sums of money in off-platform, 

illiquid investments. 

76. By the end of 2019, PAM, Spotts, and Hughes knew, or were reckless in not 

knowing, that off-platform investments represented approximately 75% of Prophecy’s reported 

net asset value.  Furthermore, PAM, Spotts, and Hughes knew, or were reckless in not knowing, 

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that these investments were frequently not in low-risk, arbitrage-like trading strategies over 

which PAM had full transparency, but were instead comprised mainly of unsecured loans or 

investments in special purpose vehicles, often with Kahn-controlled entities, for which PAM, 

Spotts, and Hughes performed little or no due diligence. 

C. Kahn’s Trading Losses Were Concealed From Investors  
 

77. PAM, Spotts, and Hughes knew, or were reckless in not knowing, that Kahn’s 

trading had resulted in massive losses for Prophecy for which there was not adequate cash 

collateral.  Yet they failed to disclose to investors the massive trading losses incurred by Kahn 

and made false representations to investors about Prophecy’s performance. 

78. From at least October 2017 through March 2020, PAM, Spotts, and Hughes 

caused PAM to solicit significant sums of new investor capital while representing to investors 

and potential investors that it had generated positive monthly returns every month since its 

inception.  For example, in March 2020, a PTA fact sheet circulated to investors showed positive 

performance in every month between October 2011 and January 2020.  PAM, Spotts, and 

Hughes knew, or were reckless in not knowing, that these representations were false. 

79. The following chart shows Prophecy’s monthly assets under management 

alongside the concealed cumulative trading losses generated by Kahn.  (The undisclosed 

cumulative trading losses include both unrealized marked-to-market losses and realized cash 

losses.)  PAM, Spotts, and Hughes knew, or were reckless in not knowing, that, by January 2020, 

Kahn’s use of leverage resulted in cumulative losses of approximately $270,000,000, which was 

more than 74% of the reported assets under management:   

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Month Reported 
Assets Under 
Management 

(Prophecy 
only) 

Undisclosed Kahn 
Cumulative 

Trading Losses 

Jan ‘18 $193,262,221 ($68,796,437) 
Feb ‘18 $206,680,330 ($89,272,107) 
Mar ‘18 $210,514,769 ($73,855,675) 
Apr ‘18 $231,581,824 ($84,973,086) 
May ‘18 $231,296,977 ($99,856,774) 
Jun ‘18 $238,882,887 ($55,769,941) 
Jul ‘18 $251,960,512 ($86,149,501) 
Aug ‘18 $278,391,448 ($99,029,274) 
Sep ‘18 $281,328,749 ($133,547,197) 
Oct ‘18 $291,278,303 ($92,770,160) 
Nov ‘18 $300,145,549 ($126,465,092) 
Dec ‘18 $309,940,471 ($85,457,632) 
Jan ‘19 $316,671,028 ($110,945,903) 
Feb ‘19 $352,256,146 ($141,049,323) 
Mar ‘19 $363,039,646 ($164,932,011) 
Apr ‘19 $351,669,307 ($193,341,589) 
May ‘19 $334,611,151 ($270,389,293) 
Jun ‘19 $338,605,040 ($274,697,896) 
Jul ‘19 $346,130,025 ($277,349,650) 
Aug ‘19 $371,751,174 ($272,194,183) 
Sep ‘19 $395,227,258 ($260,971,957) 
Oct ‘19 $361,330,212 ($278,964,629) 
Nov ‘19 $367,180,474 ($288,855,554) 
Dec ‘19 $363,079,864 ($264,739,409) 
Jan ‘20 $363,042,750 ($270,944,717) 

 

80. The losses appeared to continue to mount in February and March 2020 when 

undisclosed trading losses rose to more than $400,000,000.  

 

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D. PAM, Spotts, Kahn, and Hughes Concealed Kahn’s Lack of Cash Collateral 
 

81. PAM, Spotts, Kahn, and Hughes deceived Prophecy’s administrator and auditor 

by entering into sham transactions to provide Kahn with cash to cover his trading losses and 

falsifying documentation designed to create the appearance that Kahn’s trading losses remained 

secured by non-cash collateral.  This deception kept investors and potential investors from 

learning of the losses. 

82. Kahn, Spotts, and Hughes met for lunch on approximately May 25, 2019 at a 

restaurant in New Jersey to discuss the situation.  In the weeks and months that followed that 

meeting, Spotts and Kahn communicated extensively and Spotts directed Kahn on various 

communications with Prophecy’s auditor and administrator.  

1. PAM, Spotts, Kahn, and Hughes Used Investor Funds for Kahn’s 
Cash Collateral  

 
83. For example, by October 2017, Kahn had a negative cash collateral deposit of 

more than $20 million.  Kahn was either unwilling or unable to contribute additional cash to cure 

the deficit.  Rather than restrict his trading until he contributed additional cash collateral, Hughes 

and Kahn entered into an agreement in which Hughes caused Prophecy to engage in a “round-

trip” transaction with Kahn that both understood was designed to artificially replenish Kahn’s 

cash collateral deposit.  The below diagram illustrates this round-trip transaction: 

 

 

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84. Specifically, Kahn and Prophecy executed a promissory note whereby Prophecy 

purported to “loan” $11 million of investor funds to AGS Enterprises LLC (“AGS Enterprises”), 

an entity with no assets or operations that was owned by Kahn.  However, through a series of 

transactions, AGS Enterprises immediately returned $10 million of that amount to Prophecy 

masked as collateral contributions by Kahn.   

85. First, on November 22, 2017, Prophecy wired $5 million to AGS Enterprises.  

That same day, Kahn caused AGS Enterprises to wire $5 million to Samjor Family, Kahn’s sub-

adviser entity.  Then, Kahn caused Samjor Family to immediately wire that money back to 

Prophecy, which recorded the $5 million as a cash collateral contribution from Kahn, 

notwithstanding that Prophecy had originally advanced this money to Kahn’s entity. 

86. Eight days later, on November 30, the parties repeated the same process, taking 

another $5 million from Prophecy, routing it through entities owned by Kahn, and Kahn sending 

the same amount of money back to Prophecy to further “replenish” his cash deposit account. 

87. Less than a week later, on December 6, Prophecy sent another $1 million to AGS 

Enterprises.     

88. In an email, Hughes falsely told Prophecy’s administrator that the $11 million 

Prophecy sent to AGS Enterprises in November and December 2017 was “to fund a new 

investment.”  However, Kahn and AGS Enterprises did not invest the $11 million on behalf of 

Prophecy.  Instead, they simply sent $10 million of it back to Prophecy as cash collateral in a 

roundtrip transaction and used the remaining $1 million for other purposes.   

89. Kahn forged the signature of a former colleague as the signer of the sham loan 

agreement between Prophecy and AGS Enterprises on behalf of AGS Enterprises, thereby 

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concealing his involvement in the transaction from Prophecy’s auditor and administrator.  

However, Kahn’s former colleague had no knowledge of this transaction and was no longer 

associated with AGS Enterprises at the time of the agreement. 

2. Kahn Provided Worthless Non-Cash Collateral to Prophecy 

90. Prophecy did not report Kahn’s trading losses to investors.  Instead, PAM, Spotts, 

and Hughes caused Prophecy to record Kahn’s trading losses on its books as a receivable from 

Kahn.  While the amount of the receivable changed depending on the investments and market 

conditions, as of year-end 2018, the purported receivable accounted for approximately 0.8% of 

Prophecy’s reported assets under management. 

91. As Kahn’s losses mounted, however, the purported receivable comprised a rapidly 

increasing percentage of Prophecy’s assets under management.  By the end of 2019, the claimed 

receivable accounted for nearly 53% of Prophecy’s assets under management. 

92. To purportedly secure the receivable with collateral, Kahn and Prophecy entered 

into at least six agreements consisting of, among other things, personal guaranties, promissory 

notes, and pledged “assets,” which did not exist or had questionable value.  Yet, PAM, Spotts, 

and Hughes never wrote down or discounted the value of this receivable, or provided auditors 

with information that would have suggested it was not worth the full stated value.     

93. PAM, Spotts, and Hughes performed little to no due diligence on these assets (or 

on Kahn’s personal finances), never taking any reasonable steps to value, control, or redeem the 

non-cash collateral provided by Kahn, some of which was wholly fabricated.  

94. In addition, PAM, Spotts, Hughes, and Kahn deceived Prophecy’s auditors 

regarding the purported non-cash collateral provided by Kahn.   

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95. For example, in April 2019, during Prophecy’s on-going 2018 audit, Prophecy’s 

auditor identified that Kahn had a substantial cash deposit deficit during 2018 and emailed 

Hughes stating he “wanted to understand what was the rationale for the negative deposit 

accounts for [Kahn] and how/when Prophecy plans to remediate the same.” 

96. Subsequently, Kahn and Hughes fabricated certain documents concerning a 

purported agreement between Prophecy and Buddy’s Newco LLC (“Buddy’s”), a company 

controlled by Kahn.   

97. Specifically, Kahn created an agreement titled, “Buddy’s Newco LLC Series A 

Preferred Stock Agreement” (“Buddy’s Preferred Stock Agreement”).  On April 10, 2019, Kahn 

emailed Hughes a draft of the Buddy’s Preferred Stock Agreement that purported to show 

Prophecy’s ownership of $125 million worth of preferred shares of Buddy’s stock, backdated to 

January 1, 2018. 

98. Between April and June 2019, Kahn and Hughes exchanged additional drafts of 

the Buddy’s Preferred Stock Agreement in which the assigned value of the shares ranged from 

$75 million to $150 million. 

99. On June 1, 2019, Hughes emailed Kahn stating that they needed to “Finalize the 

class [A] share document and get certificate for same.”  Kahn responded, “Confirm date of 

issuance for you should be January 2018.  This would become a credit to the fund and an asset 

on your balance sheet year end 2018 . . . .” 

100. By June 3, 2019, Kahn delivered to Hughes two Buddy’s Convertible Stock 

Certificates (“Buddy’s Certificates”) backdated to January 3, 2018.  One of the certificates was 

for 75 shares with a purported valuation of $75 million.  The second certificate was for 150 

shares with a purported valuation of $150 million.  Subsequently, Hughes provided Prophecy’s 

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auditor with the Buddy’s Preferred Stock Agreement and the Buddy’s Certificate purportedly 

valued at $75 million.   

101. In response to a series of questions from Prophecy’s auditor, after a phone call 

with Spotts, Hughes, and at least one other person during which Kahn was instructed on the 

responses to provide to the auditor’s inquiry, Kahn falsely confirmed that he had authority to 

issue the preferred stock to Prophecy, the preferred stock was issued and outstanding as of 

December 31, 2018, and that the preferred stock was collateral used to secure his 2018 trading 

losses. 

102. In reality, Buddy’s Newco LLC Series A Preferred Shares were never issued to 

Prophecy or anybody else because the shares never existed.  The entire agreement and 

transaction was a sham created by Kahn, Spotts, and Hughes.  Spotts, Kahn, and Hughes knew, 

or were reckless in not knowing, this was done to mislead Prophecy’s auditor. 

103. Around this same time, Prophecy’s administrator requested additional information 

concerning Kahn’s non-cash collateral in light of Kahn’s rapidly accelerating trading losses in 

2019.  In an email dated June 18, 2019, Prophecy’s administrator indicated that more than 58% 

of Prophecy’s $350 million net asset value was in the form of a $204 million receivable due from 

Kahn and should be classified as illiquid.   

104. The administrator requested that Prophecy identify the non-cash collateral that 

Kahn purportedly pledged to secure the receivable owed to Prophecy and provide the 

administrator with signed monthly certifications. 

105. In response, Hughes provided the administrator with the other Buddy’s Preferred 

Stock Agreement that Kahn created, which purported to grant Prophecy $150 million worth of 

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preferred shares but was now dated January 1, 2019.  As before, these shares did not exist.  The 

entire agreement and transaction was a sham created by Kahn, Spotts, and Hughes. 

106. As requested, Prophecy began providing its administrator with certified monthly 

spreadsheets, signed by Hughes, listing Kahn’s non-cash collateral.  These monthly spreadsheets 

included the Buddy’s preferred shares, and other bogus collateral, and falsely represented to 

Prophecy’s administrator that the collateral was valid and could be liquidated to settle Kahn’s 

receivable arising from his trading losses. 

107. PAM, Spotts, Kahn, and Hughes knew, or were reckless in not knowing, that the 

purported Buddy’s preferred shares were a sham. 

3. Kahn’s Losses And Lack of Cash Collateral Were Never Disclosed To 
Investors 

 
108. In addition, PAM, Spotts, and Hughes never disclosed to investors that Kahn had 

sustained massive losses or that they were permitting Kahn to continue trading without providing 

sufficient collateral to be consistent with their represented business model.     

109. Prophecy’s June 2019 investor account statements, issued in July 2019, included a 

disclosure at the bottom that Prophecy may accept non-cash collateral.  However, PAM, Spotts, 

and Hughes never disclosed that Prophecy actually was accepting millions in non-cash collateral 

from its largest sub-adviser and that much (if not all) of the non-cash collateral were actually 

sham assets that Kahn, Spotts, and Hughes made up. 

110. PAM, Spotts, and Hughes provided prospective investors with marketing and due 

diligence materials referenced in this Complaint, which made no mention that Prophecy accepted 

non-cash collateral in lieu of cash, let alone in excess of $100 million from its largest sub-

adviser.    

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E. PAM, Spotts, Kahn, and Hughes Concealed “Off-Platform” Investment Losses 

111. PAM, Spotts, Kahn, and Hughes also concealed other Prophecy losses associated 

with impaired assets on Prophecy’s balance sheet from Prophecy’s auditor and administrator—

ultimately keeping information from investors and prospective investors—by engaging in a 

series of sham and round-trip transactions using falsified and backdated documents. 

112. From 2015 through 2019, Prophecy engaged in a series of elaborate sham, round-

trip transactions with entities controlled by Kahn, Brenda Smith (“Smith”) and George Heckler 

(“Heckler”).  These transactions concealed from Prophecy’s auditor and administrator (and 

ultimately its investors) losses Prophecy sustained, recasting the losses as new investments or 

loans.  Hughes and Spotts both knew of, or were reckless in not knowing about, these sham 

transactions, and took active roles in helping devise and effectuate these transactions. 

113. On August 27, 2019, the Commission charged Smith and Broad Reach Capital LP 

(“Broad Reach”), a hedge fund controlled by Smith, with securities fraud.  Smith was also 

charged criminally for the same conduct and pled guilty to securities fraud. 

114. On March 9, 2021, the Commission charged Heckler with securities fraud.  He 

was also charged criminally for the same conduct and pled guilty to securities fraud.   

115. Below are illustrative examples of some of the sham, round-trip transactions that 

the PAM, Spotts, Kahn, Hughes and others utilized to conceal Prophecy’s losses. 

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1. Cassatt Short Term Trading Fund 

116. By year-end 2014, Prophecy had invested more than $20 million with Cassatt 

Short Term Trading Fund (“Cassatt”), a private hedge fund controlled by Heckler and ultimately 

revealed to be a Ponzi-like, fraudulent scheme. 

117. By the end of 2014, Heckler had ceased all trading activities, closed Cassatt’s 

brokerage accounts, mainly held illiquid assets, and was unable to fully redeem Prophecy’s 

investment. 

118. Although PAM, Spotts, and Hughes knew, or were reckless in not knowing, that 

Cassett was unable to fully redeem Prophecy’s investment, they failed to disclose to investors, 

prospective investors, or auditors Prophecy’s substantial loss via the Cassatt investment, which 

would directly contradict representations made to investors regarding Prophecy’s investment 

strategy and liquid assets, and would jeopardize the future prospects of both Prophecy and PAM. 

119. For instance, by 2018, Prophecy’s investment losses in Cassatt had been shifted to 

another hedge fund advised by PAM, Prophecy Alpha Fund LP (the “Alpha Fund”) and re-

characterized as a $22.5 million loan owed to the Alpha Fund by another Heckler entity. 

120. In February 2018, PAM, Spotts, and Hughes concealed the loss by causing 

Prophecy to “invest” an equivalent amount ($22.5 million) in Clearview Fund LP (“Clearview”), 

an entity controlled by Smith.  Clearview, in turn, used the investment proceeds obtained from 

Prophecy to purchase from the Alpha Fund the clearly worthless loan owed by Heckler for face 

value.  The worthless loan owed by Heckler was the only asset of Clearview.  So, PAM, Spotts, 

and Hughes knew or were reckless in not knowing that the $22.5 million “investment” in 

Clearview by Prophecy was essentially worthless.     

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121. In 2019, Kahn helped PAM, Spotts, and Hughes clear Prophecy’s books of the 

Clearview investment in advance of Prophecy’s 2018 audit by engaging in another set of 

complex fraudulent transactions.  The below diagram illustrates this round-trip transaction: 

 

 
 

122. Specifically, on March 28, 2019, Prophecy “loaned” $21 million to Caiman 

Partners (“Caiman”), an entity controlled by Kahn, which had no assets or operations.  The 

following day, to assist Prophecy, Kahn wired this money, plus approximately $2.2 million of his 

own funds, to Clearview Distribution Services LLC (“Clearview Distribution”), a newly created 

entity controlled by Smith, for the purported purchase from Clearview of the defaulted loan 

owed by Heckler.  Clearview Distribution wired the approximately $23.2 million it received 

back to Prophecy the same day.   

123. Prophecy represented to its auditor and administrator that the approximately $23.2 

million payment received was for the redemption of the investment in Clearview.  In reality, as 

known by Kahn, PAM, Spotts, and Hughes this was simply a complex series of transactions to 

continue to hide Prophecy’s trading losses.  Going forward from March 2019, that loss was 

masked as a new investment – a “loan” to Caiman partners. 

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2. Broad Reach  

124. By 2018, Prophecy had an investment valued on its books at approximately $24 

million in Broad Reach.  Though Spotts claimed to at least one investor that Prophecy had full 

transparency into the underlying investments of Broad Reach, this was false.  Broad Reach also 

turned out to be a Ponzi-like, fraudulent scheme. 

125. When Prophecy attempted to redeem its Broad Reach investment at the end of 

2018, Smith informed Spotts and Hughes that Broad Reach was only able to make a partial 

redemption of $6.5 million – leaving Prophecy with an approximate $17.5 million redemption 

receivable.   

126. By May 2019, with collectability of the receivable in doubt, with an institutional 

investor seeking redemption of its investment in Prophecy, and in the midst of its 2018 audit, 

PAM, Spotts, and Hughes again turned to Kahn to help fraudulently clear Prophecy’s books of 

the impaired asset and conceal the related loss. 

127. Specifically, in May 2019, Hughes emailed Kahn asking him to wire Prophecy 

$17,579,885.15⸺the exact amount of the outstanding Broad Reach receivable.  

128. Kahn sourced the funds needed from entities he controlled and routed the funds to 

Kahn’s AGS Enterprises.  Kahn then, via multiple wire transfers, sent the exact amount 

requested by Hughes to Prophecy.   

129. The funds sourced by Kahn included approximately $444,000 and $580,000 of 

capital from Special Opportunities (a fund structure launched by PAM in 2019) and Prophecy, 

respectively, relating to purported investments in entities controlled by Kahn in the days leading 

up to Kahn’s purchase of the Broad Reach interest.  

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130. On June 12, 2019, days after Kahn began making the AGS Enterprises’ payments 

to Prophecy, Kahn emailed Hughes a one-page agreement backdated to April 1, 2019 titled 

“Assignment of Limited Partnership Interest.”  This document purported to assign Prophecy’s 

partnership interests in Broad Reach to AGS Enterprises. 

131. PAM, Spotts, Kahn, and Hughes concealed Kahn’s involvement in this 

transaction from Prophecy’s auditor and administrator.  In addition, Spotts and Hughes knew that 

Prophecy’s limited partnership agreement with Broad Reach did not allow Prophecy to 

unilaterally assign its partnership interests to a third party. 

132. To overcome these hurdles, Kahn forged the signature of his then 13 year-old son 

on the document, using his son’s first and middle name but omitting his last name; and Spotts 

and Hughes altered the limited partnership agreement before sending it to Prophecy’s auditors in 

such a way that purportedly allowed Prophecy to assign its limited partnership interest in Broad 

Reach.   

133. On June 17, Spotts emailed Prophecy’s auditor concerning the Broad Reach 

redemption, falsely stating “[w]hile we redeemed for 12/31/18, we received the proceeds plus 

interest during the interim.”  Spotts supported this assertion by sending what appeared to be a 

Broad Reach account statement indicating Prophecy was fully redeemed by April 2019.  But 

Spotts knew, or was reckless in not knowing, that this was false.  The cash received from 

Prophecy was actually provided by Kahn to “purchase” the worthless Broad Reach receivable.   

134. After Smith was charged by the Commission in August 2019 and arrested by law 

enforcement in connection with the criminal case, at least one investor recalled that Prophecy 

had invested in Broad Reach.  The investor contacted Spotts to inquire whether Prophecy had 

suffered a loss in Broad Reach.  On August 27, Spotts replied with false assurances that “[w]e 

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are not in that fund” and “[w]e are not impaired by this event.”  Spotts knew or was reckless in 

not knowing that his representations to the investor were false and/or misleading. 

3. Vintage Capital Management LLC  

135. Although Kahn had a cash collateral deficit in excess of $50 million during the 

fall of 2018, Prophecy provided a $36 million unsecured loan to Vintage Capital Management 

LLC (“Vintage”), an asset management company controlled by Kahn. 

136. Spotts and Hughes did not do this transaction for the benefit of Prophecy or its 

investors.  Instead, they understood that Kahn was going to use the loan proceeds to provide 

rescue financing to a company in which Vintage was heavily invested.  Prophecy included this 

new “allocation” on the December 2018 Portfolio Breakdown Report sent to investors as 

“Manager 33,” masking that it was going to a Kahn-controlled entity.   

137. Spotts and Hughes also failed to disclose the true nature of this large off-platform 

loan to investors, falsely classifying it as a “Fixed Income” trading strategy on the Portfolio 

Breakdown Report.   

138. By December 2018, the Prophecy loan to Vintage had matured and Kahn failed to 

repay the loan.  During Prophecy’s 2018 audit, rather than acknowledge to its auditor that the 

loan had defaulted and was uncollectable, Kahn, Spotts, and Hughes devised a plan to enter into 

a series of complex sham transactions to conceal the failed loan. 

139. Kahn told Hughes that he was receiving money from another source and would 

temporarily pay the $36 million loan, but needed the money he paid immediately returned. 

140. Specifically, on or about April 25 and 26, 2019, PAM, Spotts, Hughes, and Kahn 

engaged in a round-trip transaction designed to deceive Prophecy’s auditors. 

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141. On April 25, Kahn received $25 million into a Vintage account from a third-party.  

A few minutes later, the same account wired $25 million to Prophecy.  Later that day, the same 

Vintage account sent an additional $2.5 million to Prophecy.  The following morning, April 26, 

the same Vintage account sent another $8.5 million to Prophecy, resulting in a total of $36 

million being sent to Prophecy over the two days. 

142. However, on the morning of April 26, PAM, Spotts, and Hughes caused Prophecy 

to send the $36 million back to Kahn as purported “investments” in two Kahn-controlled entities, 

wiring $17 million to Vintage Tributum LP and $19 million to Vintage Panther LP.   

143. While the parties documented the purported investments, the investments did not 

exist and the documents were created only to make it appear as though the original loan had been 

repaid.      

144. When Spotts and Hughes were questioned by Prophecy’s auditor about the source 

of the Vintage loan repayment, Hughes intentionally misled the auditor, stating in an email, and 

copying Spotts, that no additional loans were exchanged with Vintage or any affiliated entities of 

Kahn for the collection of the $36 million loan. 

4. Samjor LP 

145. By year-end 2019, Kahn’s trading losses had increased.  However, PAM, Spotts, 

and Hughes made no effort to collect on this debt, which Prophecy designated a receivable on its 

balance sheet, through the purported non-cash collateral that Kahn had pledged to secure the 

receivable.   

146. Spotts and Hughes became concerned that Prophecy’s auditor and administrator 

would further scrutinize the validity of the non-cash collateral pledged by Kahn. 

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147. To relieve this concern, Spotts, Kahn, and Hughes determined that the receivable 

Kahn owed would need to be replaced with a different “asset.” 

148. Subsequently, Kahn formed a limited partnership called Samjor LP (“Samjor”).  

According to the Samjor partnership agreement, Kahn was to initially capitalize the partnership 

by contributing $194 million worth of shares of a publicly traded company for which Kahn 

served as CEO, and Samjor would issue the lone limited partnership interest in the fund to 

Prophecy.  In so doing, the receivable owed by Kahn on Prophecy’s balance sheet would be 

exchanged for a new limited partnership investment in Samjor. 

149. However, Kahn failed to contribute the shares to the partnership as agreed, 

rendering worthless the limited partnership interest issued to Prophecy because Samjor had zero 

assets.  Although Spotts and Hughes knew, or were reckless in not knowing, that Kahn never 

funded the Samjor partnership with publicly traded securities, Prophecy reported this transaction 

to its administrator as a new “fund investment” worth $194 million.   

150. In order to finalize Prophecy’s net asset value for the month, Prophecy’s 

administrator requested from Hughes a statement issued by Samjor to confirm the value of the 

investment.  Hughes passed along the request to Kahn, and Kahn then issued a fabricated 

account statement to Prophecy’s administrator indicating that Prophecy’s investment in Samjor 

was valued at $194 million as of December 31, 2019 and January 31, 2020, despite knowing that 

Samjor had no assets. 

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F. Special Opportunities 

151. In April 2019, PAM launched Special Opportunities.  Similar to Prophecy, Spotts 

raised capital for the funds and communicated with Special Opportunities’ investors and 

prospective investors, and Hughes oversaw the back-office and risk management operations. 

152. Pursuant to its offering materials, Special Opportunities purportedly allocated 

capital to a smaller group of sub-advisers that were selected due to their past success.  However, 

unlike Prophecy, Special Opportunities did not purport to have a first-loss component.  Instead, 

investors stood to receive a higher percentage of any trading profits generated by the sub-

advisers. 

153. Spotts and Hughes caused PAM to provide a fact sheet to investors stating that 

Special Opportunities’ “assets are allocated primarily across liquid discretionary and systematic 

equity long/short strategies that have a non-market risk/asymmetrical return profile, liquidity of 

the underlying instruments, prior history with Prophecy, quality of operational infrastructure and 

ability to produce consistent returns.” 

154. Spotts and Hughes knew, or were reckless in not knowing, that the representations 

regarding Special Opportunities were false.  Instead of investing the capital provided by 

investors in proven investment strategies as it had represented, Special Opportunities allocated 

millions of dollars to Prophecy in the form of undocumented, unsecured loans, and to Kahn in 

the form of investments in entities under his control. 

155. According to Special Opportunities’ March 2020 “investment schedule,” of the 

$47.5 million of assets held, almost $18 million had been loaned to Prophecy, and another 

approximately $19 million was invested in entities controlled by Kahn.   

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156. PAM, Spotts, and Hughes caused Special Opportunities to make these loans and 

investments at a time when they knew Prophecy was imploding due to Kahn’s massive trading 

losses, lack of adequate collateral, and inability to repay his obligations. 

157. The capital allocated to Prophecy appears to have been used to purportedly 

provide first-loss cash deposits for certain sub-advisers whose trading profits would be split with 

Special Opportunities.  But those funds were never segregated in a bank account overseen by the 

administrator and were largely transferred to prime brokerage accounts held by Prophecy.  

Moreover, Kahn round-tripped some of the money allocated to him back to Prophecy in order to 

conceal other investment losses, including losses arising from Prophecy’s investment in Broad 

Reach.  

G. The Fraud Unravels 

158. In a letter to investors dated March 31, 2020, Spotts disclosed that Prophecy’s 

auditor had resigned and withdrawn its opinion and that PAM had suspended all redemptions for 

Prophecy and Special Opportunities. 

H. Defendants Violated the Federal Securities Laws 

159. During the relevant period, PAM, Spotts, Kahn, and Hughes perpetrated a 

fraudulent scheme.  

160. In perpetrating the fraud, Defendants used the means or instruments of interstate 

commerce or of the mails, or the facility of a national securities exchange, including by 

communicating false statements and sending fabricated documents through emails. 

161. All of the misrepresentations and omissions set forth herein, individually and in 

the aggregate, are material.   

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162. Defendants engaged in deceptive conduct, including, but not limited to, lying to 

and deceiving Prophecy’s auditors, creating false documents purporting to show that Kahn had 

posted adequate collateral to cover his massive trading losses, forging signatures on documents, 

and, on multiple occasions, entering into sham and round-trip transactions.  

163. PAM, Spotts, and Kahn acted knowingly and/or recklessly while engaging in 

deceptive conduct. 

164. PAM and Spotts made material misrepresentations and omitted stating material 

facts necessary to make other material statements not misleading to investors and prospective 

investors in connection with the purchase, sale, or offering of securities. 

165. PAM and Spotts acted knowingly and/or recklessly in making material 

misrepresentations and omitting material facts. 

166. All of the misrepresentations and omissions set forth herein, individually and in 

the aggregate, are material. 

167. PAM and Spotts had ultimate authority for false and misleading statements and 

omissions made orally and in writing to investors and prospective investors in Prophecy offering 

materials and other communications to investors. 

168. Through this scheme, Defendants employed a device, scheme or artifice to 

defraud and engaged in acts, transactions or courses of business that operated as a fraud or deceit 

upon investors and/or clients. 

169. The conduct described herein was in connection with the purchase, sale, or 

offering of securities.   

170. PAM, Spotts, and Kahn acted as investment advisers during the relevant period by 

providing investment advisory services for a fee. 

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171. PAM, Spotts, and Kahn provided investment advisory services to pooled 

investment vehicles, Prophecy and Special Opportunities. 

172. In connection with the conduct described herein, PAM, Spotts, and Kahn 

breached the fiduciary duty they owed to their investment advisory clients. 

CLAIMS FOR RELIEF 

FIRST CLAIM FOR RELIEF 
Violations of Section 17(a) of the Securities Act 

(Defendants PAM and Spotts) 
 

173. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein. 

174. By engaging in the conduct alleged herein, PAM and Spotts, in the offer or sale of 

securities, directly or indirectly, singly or in concert, by the use of the means or instruments of 

transportation or communication in interstate commerce, or the means or instrumentalities of 

interstate commerce, or the mails, or the facilities of a national securities exchange: 

a. knowingly or recklessly employed devices, schemes or artifices to defraud; 
 

b. knowingly, recklessly, or negligently obtained money or property by means 
of, or made, untrue statements of material fact, or omitted to state material facts necessary in order 
to make the statements made, in light of the circumstances under which they were made, not 
misleading; and/or 

 
c. knowingly, recklessly, or negligently engaged in acts, transactions, practices, 

or courses of business that operated as a fraud or deceit upon offerees, purchasers, and prospective 
purchasers of securities. 

 
175. By engaging in the foregoing conduct, PAM and Spotts violated, and unless 

restrained and enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 

77q(a)]. 

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SECOND CLAIM FOR RELIEF 

Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act 
(Defendant Kahn) 

 
176. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if they were fully set forth herein.  

177. By engaging in the conduct alleged herein, Kahn directly or indirectly, singly or 

in concert, by the use of the means or instruments of transportation or communication in 

interstate commerce, or the means or instrumentalities of interstate commerce, or the mails, (1) 

knowingly or recklessly employed devices, schemes or artifices to defraud; and/or (2) 

knowingly, recklessly, or negligently engaged in acts, transactions, practices, or courses of 

business that operated as a fraud or deceit upon offerees, purchasers, and prospective purchasers 

of securities. 

178. By reason of the foregoing, Kahn violated, and unless restrained and enjoined will 

continue to violate, Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) 

and 77q(a)(3)]. 

THIRD CLAIM FOR RELIEF 
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder 

(Defendants PAM and Spotts) 

179. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein. 

180. By engaging in the conduct alleged herein, PAM and Spotts directly or indirectly, 

by use of the means or instruments of interstate commerce or of the mails, or the facility of a 

national securities exchanges, in connection with the purchase and sale of securities described 

herein, knowingly or recklessly: 

a. employed devices, schemes, or artifices to defraud; 

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b. made untrue statements of material facts and omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances under which they 
were made, not misleading; and/or 
 

c. engaged in acts, practices, and courses of business which operated or would 
operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 
 

181. By reason of the foregoing, PAM and Spotts, directly and indirectly, violated and, 

unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] 

and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

 
FOURTH CLAIM FOR RELIEF 

Violations of Section 10(b) of the Exchange Act and  
Rules 10b-5(a) and 10b-5(c) thereunder  

(Defendant Kahn) 
 

182. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein. 

183. By engaging in the conduct alleged herein, Kahn directly or indirectly, by use of 

the means or instruments of interstate commerce or of the mails, or the facility of a national 

securities exchanges, in connection with the purchase and sale of securities described herein, 

knowingly or recklessly: (a) employed devices, schemes, or artifices to defraud; and/or (b) 

engaged in acts, practices, and courses of business which operated or would operate as a fraud or 

deceit upon any person, in connection with the purchase or sale of any security. 

184. By reason of the foregoing, Kahn, directly and indirectly, violated and, unless 

enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and 

Rules 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

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FIFTH CLAIM FOR RELIEF 
Violations of Section 206(1) and (2) of the Advisers Act 

(All Defendants) 
 

185. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein. 

186. At all relevant times, PAM, Spotts, and Kahn were investment advisers under 

Advisers Act Section 202(11) [15 U.S.C. § 80b-2(11)]. 

187. By engaging in the conduct alleged herein, PAM, Spotts, and Kahn, by use of the 

mails or any means or instrumentality of interstate commerce, directly or indirectly: 

a. knowingly or recklessly employed devices, schemes or artifices to defraud 
any client or prospective client; and/or 

 
b. knowingly, recklessly, or negligently engaged in transactions, practices, or 

courses of business which operated or would operate as a fraud or deceit upon any client or 
prospective client. 

 
188. By engaging in the foregoing conduct, PAM, Spotts, and Kahn violated, and 

unless restrained and enjoined will continue to violate, Sections 206(1) and (2) of the Advisers 

Act [15 U.S.C. §§ 80b-6(1) and (2)]. 

SIXTH CLAIM FOR RELIEF 
Violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder 

(PAM and Spotts) 
 

189. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein. 

190. At all relevant times, PAM and Spotts were investment advisers under Advisers 

Act Section 202(11) [15 U.S.C. § 80b-2(11)] to a pooled investment vehicle, as defined in Rule 

206(4)-8(b) [17 C.F.R. § 275.206(4)-8(b)]. 

191. PAM and Spotts, by engaging in the conduct alleged herein, by use of the mails or 

any means or instrumentality of interstate commerce, directly or indirectly, knowingly, 

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recklessly, or negligently: (a) made one or more untrue statements of material fact or omitted to 

state one or more material facts necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading, to any investor or prospective 

investor in the pooled investment vehicle; and/or (b) engaged in one or more acts, practices, or 

courses of business that were fraudulent, deceptive, or manipulative, with respect to any investor 

or prospective investor in the pooled investment vehicle.. 

192. By reason of the foregoing, PAM and Spotts violated and, unless restrained and 

enjoined, will continue to violate Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and 

Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8]. 

SEVENTH CLAIM FOR RELIEF 
Violations of Section 206(4) of the Advisers Act and Rule 206(4)-8(a)(2) thereunder 

(Defendant Kahn) 
 

193. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 172, inclusive, as if the same were fully set forth herein. 

194. At all relevant times, Kahn was an investment adviser under Advisers Act Section 

202(11) [15 U.S.C. § 80b-2(11)] to a pooled investment vehicle, as defined in Rule 206(4)-8(b) 

[17 C.F.R. § 275.206(4)-8(b)]. 

195. Kahn, by engaging in the conduct alleged herein, by use of the mails or any 

means or instrumentality of interstate commerce, directly or indirectly, knowingly, recklessly, or 

negligently engaged in one or more acts, practices, or courses of business that were fraudulent, 

deceptive, or manipulative, with respect to any investor or prospective investor in the pooled 

investment vehicle. 

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196. By reason of the foregoing, Kahn violated and, unless restrained and enjoined, 

will continue to violate Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule 

206(4)-8(a)(2) thereunder [17 C.F.R. § 275.206(4)-8(a)(2)]. 

PRAYER FOR RELIEF 

 WHEREFORE, the Commission respectfully requests that this Court enter a final 

judgment: 

I. 

 Permanently restraining and enjoining PAM, Spotts, and Kahn from, directly or 

indirectly, violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and 

Sections 206(1), (2), and (4) of the Advisers Act [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 

206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].   

II. 

Ordering PAM and Spotts to disgorge all ill-gotten gains or unjust enrichment with 

prejudgment interest, to effect the remedial purposes of the federal securities laws. 

III. 

Ordering PAM. Spotts, and Kahn to pay civil penalties pursuant to Section 20(d) of the 

Securities Act [15 U.S.C. § 77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C. 

§ 78u(d)(3)], and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)] 

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IV. 

Barring Spotts and Kahn from serving as an officer or director of a public company 

pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)], Section 21(d)(2) of the 

Exchange Act [15 U.S.C. § 78u(d)(2)]; and 

V. 

 Granting such other and further relief as this Court may determine to be just and 

necessary. 

JURY DEMAND 

Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff demands that this 

case be tried to a jury. 
 
 
 
Respectfully submitted, 
 

 By: s/John V. Donnelly III   
John V. Donnelly III 
Gregory Bockin 
Julia C. Green 

 Securities and Exchange Commission 
 1617 JFK Blvd., Suite 520 

 Philadelphia, PA 19103 
 Telephone: (215) 597-3100 
 Facsimile: (215) 597-2740 
 Email:  [email protected] 

 
ATTORNEYS FOR PLAINTIFF 
SECURITIES AND EXCHANGE 
COMMISSION 

Dated: September 29, 2025 

 

  

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IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF NEW JERSEY 

 
 
SECURITIES AND EXCHANGE COMMISSION, 
 
  Plaintiff, 
 
 v. 
 
PROPHECY ASSET MANAGEMENT LP, 
JEFFREY SPOTTS and BRIAN KAHN  
    
  
  Defendant. 

 
Case No.  

 
DESIGNATION OF AGENT  
FOR SERVICE 

 

 

  
 Pursuant to Local Rule 101.1(f), because the Securities and Exchange Commission (the 

“Commission”) does not have an office in this district, the United States Attorney for the District 

of New Jersey is hereby designated as eligible as an alternative to the Commission to receive 

service of all notices or papers in the captioned action.  Therefore, service upon the United States 

or its authorized designee, David Dauenheimer, Deputy Chief, Civil Division, United States 

Attorney’s Office for the District of New Jersey, 970 Broad Street, 7th Floor, Newark, NJ 07102 

shall constitute service upon the Commission for purposes of this action. 

        
Respectfully submitted, 

s/ John V. Donnelly III  
John V. Donnelly III 
 
Attorney for Plaintiff 
U.S. Securities and Exchange Commission 
Philadelphia Regional Office 
1617 JFK Boulevard, Suite 520 
Philadelphia, PA  19103 

 Telephone: (215) 597-3100 
 Facsimile: (215) 597-2740 

[email protected] 

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	SUMMARY
	THIRD CLAIM FOR RELIEF
	Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder
	FOURTH CLAIM FOR RELIEF
	Violations of Section 10(b) of the Exchange Act and
	Rules 10b-5(a) and 10b-5(c) thereunder