Venture capital's role in a major Ponzi scheme
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Last week you might have seen headlines about how NFL star Travis Kelce got swindled by a Texas hedge fund manager who was running a Ponzi scheme.
- Deep in the details is how venture capital played a key role in the deception.
Catch up quick: Sid Jawahar, co-founder of Swiftarc Capital, in January pleaded guilty to three counts of wire fraud.
- Last week he was sentenced to 11 years in prison and ordered to pay $31.35 million in restitution (although it's unclear that Jawahar has, or ever will have, the means to do so).
Behind the scenes: Swiftarc Capital was formed in late 2010 as a frontier markets hedge fund, investing in obscure equities.
- Jawahar was the outward-facing fundraiser, while much of the investment sourcing was done by a former UTIMCO analyst named Siamc Kamalie. They were seeded and aided by several Texas-area investors with deep track records.
- "Siamc was real smart and hard-working; the kind of guy who'd be gone for a month to China or Africa and come back with just $6,000 in expenses," says a source. "But there were early red flags on Sid, and soon he seemed to push Siamc to the side."
Zoom in: According to the criminal indictment, Jawahar in 2015 began investing almost all Swiftarc investor monies into a single company, Philip Morris Pakistan.
- PMP's stock price swooned and, when some Swiftarc investors tried to redeem, Jawahar didn't have the money. So he began raising it from others, including for a series of venture capital funds under a new brand called Swiftarc Ventures.
- Swiftarc Ventures wasn't just a bogus shell. It hired a real staff and backed startups in sectors like beauty and wellness. But a lot of its money also went to repay Swiftarc Capital investors, plus to fund Jawahar's lavish lifestyle.
- One former employee tells Axios: "Nobody in the Ventures team knew what was happening... It's fucking ironic that a guy who preached to us that integrity was the most important item of character goes down on that."
Fast forward: Jawahar's house of cards began crashing down in June 2022. That's when the Texas State Securities Board ordered Swiftarc Capital to cease and desist from "engaging in fraud," after discovering that the firm had been inflating its Philip Morris Pakistan position.
- Federal prosecutors indicted Jawaher the following year.
- At some point, a firm called Relevance Ventures took control of two Swiftarc funds. Fred Goad, a Relevance partner who died last year, was listed as having an ownership stake in Swiftarc since 2013.
- Relevance didn't return a request for comment or clarification. A DOJ spokesperson also declined further comment.
