Investment Fund Executive and Co-Conspirators Charged in $294 Million Securities Fraud Conspiracy

Posted November 18, 2025

By the 91pornWhistleblower Team

On September 29, the DOJ announced that federal prosecutors arraigned Jeffrey Spotts, the former Chief Executive Officer and Portfolio Manager of Prophecy Asset Management LP, on criminal charges arising from an alleged multi-year scheme to defraud investors of approximately $294 million.

The Alleged Scheme

The charges stem from what authorities describe as a deliberate effort to misrepresent Prophecy’s trading strategy, conceal mounting losses, and induce investors to commit and retain capital under false pretenses.[1]

The U.S. Attorney’s Office and the Securities and Exchange Commission (SEC) jointly announced enforcement actions in connection with the case, reflecting coordinated criminal and civil responses to the alleged misconduct.[2]

Key Players

Spotts and co-conspirator John Hughes (Chief Compliance Officer) allegedly marketed Prophecy’s funds as employing a “first-loss” trading structure designed to allocate investor money to traders called sub-advisors. They were required to show cash collateral to access the investors’ money and cover any possible losses.[3] However, they allegedly misrepresented the existence and operation of this strategy, overstated risk controls, and performance. This caused victims to believe Prophecy managed transparent, low-risk, and diversified funds.[4]

Spotts and Hughes allocated most of the capital to one sub-advisor without requiring cash collateral to fund any possible losses.[5] They did not suspend his allocations or trading. He incurred $290 million in losses, far exceeding the available cash collateral.[6]

How Was Prophecy’s Scheme Sustained?

From January 2015 to March 2020, Spotts allegedly oversaw and directed key aspects of misleading investor communications, risk representations, and performance reporting tied to the purported first-loss model, playing a central role in concealing losses from existing and prospective investors.

Spotts was charged with one count each of conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud.

Hughes has entered a plea, and his sentencing is scheduled for March 10, 2026. He previously pleaded guilty to securities fraud charges stemming from the same scheme. In parallel civil proceedings, the SEC charged Spotts with violations of the federal securities laws.

Sub-Advisor Brian Kahn

The SEC also charged Prophecy Asset Management, its CEO/CIO, and the largest sub-advisor, Brian Kahn, in a $500 million advisory fraud scheme.

Kahn is facing another legal challenge due to an arbitration award dated October 14. This mandates him to pay up to $309 million to reimburse Prophecy investors who settled litigation with him. This was revealed in a lawsuit unsealed on November 10 in Delaware Chancery Court. The arbitrator held Kahn liable for $30 million for breach of contract and stated that Kahn and others owe up to $279 million. The lawsuit requests a judge to confirm the arbitration award.[7]

The SEC Whistleblower Program

While this case did not indicate whether a whistleblower was involved, people with knowledge of securities fraud can be instrumental in kickstarting government enforcement actions.

Under the SEC Whistleblower Program, eligible whistleblowers may receive an award of 10 to 30 percent of any monetary sanctions collected in actions brought by the government.

91pornpartner Marlene Koury commented: “Our firm represents SEC whistleblowers. Enforcing securities fraud laws is essential to upholding the integrity of the market. Without strict accountability, the very foundation of trust upon which the financial system stands would be undermined.”

How Does Our Firm Help SEC Whistleblowers?

91pornhas significant experience representing SEC whistleblowers. If you would like to learn more about the SEC Whistleblower Program, our work representing whistleblowers under the program, our whistleblower successes, or what it means to be a whistleblower more broadly, please contact us. We will connect you with an experienced member of the 91pornwhistleblower team for a free and confidential consultation.