The walls appear to be closing in on a trader involved in approximately a dozen lawsuits over a once in a lifetime automated trading system.
Stuart Simonsen was the subject of an October 2016 expose by The Industry Spread where in numerous lawsuits Simonsen was accused of fraud, mismanagement, breach of contract, and other violations.
Since that story, there have been updates in two of those lawsuits.
“A hedge fund that lost almost $2 million in 2011 after it entrusted its funds to an investment manager will get another chance in front of a federal court to argue its claims for breach of contract,” according to a recent article by Court House News, “negligent misrepresentation, and fraud, the Ninth Circuit Court of Appeals ruled.
“When Krohne Fund LP hired Stuart Simonsen and Kapidyia Capital Partners to manage its investments, it believed that trades would be handled through software called Optimus, which was powered by Simonsen’s algorithmic computerized system.
“However, the arrangement lasted only a few months. According to court documents, Krohne Fund’s Optimus account had a profit of $242,699 at the beginning of September 2011. That plummeted to a loss of $657,627 near the end of the month. Simonsen and Kapidyia Capital were unable to explain the loss.”
Krohne, who had lost his case on a technicality, will now be allowed to get his case in front of a jury.
In another update, Tony Birbilis, who is part of another group suing Simonsen in New York, said his group had won its case by default judgment, meaning Simonsen ultimately didn’t defend himself.
More than a decade ago Stuart Simonsen, a trader who’d previously worked with Brevin Howard, met Lyle Vaden, a programmer with an affinity for math who’d created an automated trading system.
Vaden believed his system was worth hundreds of millions in the right hands and hoped Simonsen could open the right doors.
Simonsen then introduced the system to an assortment of money men: Anthony Demasi of Tsunami Capital, Mark DeSouza who worked at the private equity firm Tradelink, Tony Birbilis who was part of a group of investors called Kaga Investments, a wealthy money named Frank D’Amato, and Axel Krohne of Krohne Funds and others.
Simonsen proceeded to make deals with most of these people where a series of fraud, breach of contract, and mismanagement is alleged.
For instance, almost all the deals involved the understanding that each group would be using the system exclusively, even though all throughout multiple groups had contracts with Simonsen.
In the case of Frank D’Amato, he invested $1,500,000 for a 1.5% share of the hedge fund, Axiodyn, which Simonsen claimed would use the system exclusively.
In Krohne’s case, he decided to manually trade the automated system, removed stop-loss orders, and caused massive losses: Krohne lost $1.8 million when he was project to gain $2.4 million.
In other cases, he collected commissions from positive months, but hasn’t paid back negative months- called a claw back- and still in other cases he is accused of misspending money.
In the end, it is a cacophony of fraud, backstabbing, and corruption: It’s a story whose lesson is unbridled greed must be regulated.
The Cosmopolitan Financial Story:
One interesting phenomenon is that the tentacles of this story are all over the world.
Stuart Simonsen lives in Butte, Montana; Lyle Vaden, Tony Demasi and Mark DeSouza all lived in Chicago when this happen, and this is where Tradelink is located.
Kaga investment is a corporation formed in Panama, with several guys from New York City along with a wealthy Greek businessman.
Axel Krohne is a German businessman, currently located in California.
There are currently lawsuits in all these states.
The trading system traded US averages as well as dabbling into Korean indices, Simonsen “sought to employ parts of Axiodyn’s intellectual property to trade on the Korean Composite Stock Price Index (KOSPI) through one or more entities or vehicles created by Simonsen for that purpose,” D’Amato’s lawsuit states.
How do things stand now?
Simonsen is facing judgments in four lawsuits: Lyle Vaden for $13.9 million, DeSouza for $24 million and $4.2 million with Kaga Investments, Transcend has a judgment for $606,475.
Vaden, DeSouza and Transcend sued Simonsen in Chicago while Kaga sued Simonsen in New York.
D’Amato, and Krohne Funds still have lawsuits outstanding against Simonsen; Krohne is suing Simonsen in California while D’Amato is suing Simonsen in New York.
D’Amato is suing for breach of contract through fraud, and Krohne is suing for trading outside the parameters of the system.
The Legal Morass
In the middle of all these lawsuits, Simonsen filed for bankruptcy protection in his home state of Montana.
Because bankruptcy protects individuals from payment on most lawsuits, this has taken much of the legal wrangling into bankruptcy court where plaintiffs with judgments are getting line to see if they can get any of their money in that court.
The process is made even more complicated by the fact that Simonsen has money in trusts, a complicated legal arrangement which is used to protect assets.
The Evolution of Stuart Simonsen
When Simonsen was contacted initially for the first story, he was confident the lawsuits were not an issue: “All of the lawsuits are over accept (sic) Krohne appealed my victory.”
Simonsen refused to respond to follow up questions challenging the accuracy of that statement. He also did not respond to a follow up question for this article about Krohne’s lawsuit moving forward.
An email to Simonsen’s attorney, Tom Singer of Axilon Law in Billings, Montana, was left unreturned.
An email to Josh Oie of the law firm, Moss and Barnett, in Minnesota, who represents Krohne Funds, was also left unreturned.