Ex-investment manager Hauke gets 10 years for fraud

Former Fishers investment manager Keenan Hauke was sentenced Friday to 10 years in federal prison for securities fraud.

Hauke admitted masking huge losses in a hedge fund he operated that resulted in dozens of investors losing more than $7 million. He was ordered to make $7.1 million in restitution.

Hauke, 41, agreed to plead guilty in December to one count of securities fraud, a charge that carried a maximum penalty of 25 years in prison. The plea agreement prevented the government from recommending a prison sentence of more than 17 years.

Appearing before federal judge Tanya Walton Pratt in an Indianapolis courtroom Friday morning, Hauke testified that he was willing "to spend the rest of my life living with nothing but necessities until restitution is complete."

Pratt said Hauke would begin serving his sentence immediately at the federal correctional institution in Terre Haute.

IBJ reported in August that Hauke’s hedge fund had invested millions of dollars into Michigan real estate eight years ago without telling clients and that the holdings ended up nearly worthless. Rather than fess up, he created fake account statements for clients and used money from new investors to pay off earlier ones.

Victim Amy Edmonds said Friday morning that she and her husband entrusted Hauke with his 401(k) fund along with an inheritance she received from her father. She told the judge they were next-door neighbors of the Hauke family for 10 years and trusted him with their money.

“We thought we were friends; we were wrong,” she said. “We feel stupid, hurt and violated.”

Hauke’s attorney had maintained that Robert Beasley, another hedge fund manager whose firm had provided back-office administration for Hauke’s fund, had made the losing real estate investments without Hauke's knowledge or approval.

But court papers filed by prosecutors in December said that that while “initially, the real estate transaction was initiated by [Beasley’s firm] … Hauke ultimately approved the real estate investment made by the hedge fund.”

Prosecutors said he shifted assets among accounts to obscure his wrongdoing. After suffering the real estate losses, Hauke separated clients into the “Brokerage Group” and the “Real Estate Group.” He consolidated all the hedge fund’s legitimate investments into the Brokerage Group, while the Real Estate Group got the disastrous Michigan investments.

The Securities Division of the Secretary of State’s Office began investigating Hauke early last year after a co-worker, Scott Noble, notified the state about irregularities he said he had discovered. The FBI soon joined the probe.

“Mr. Hauke's guilty plea and [Friday's] sentencing close a chapter in my life that began last year,” Noble said in an e-mailed statement. “Thank you, to the Dept. of Justice and the Indiana Securities Division for bringing swift justice to a criminal that has caused many people a lot of stress.”

Hauke’s lawyer, Juval O. Scott, argued in court filings before the sentencing for a more lenient prison term, maintaining that the amount of investor money Hauke took for his personal use totaled less than $1 million.

That included $377,000 for a condominium in Barbados, $150,000 to the Internal Revenue Service, $120,000 to pay off a mortgage on his residence and $41,000 to purchase a Toyota minivan and Prius.

Since he did not live a lavish lifestyle, Scott argued in the documents, more than $2 million was recovered by a court-appointed receiver trying to marshal assets and reduce investor losses.

“Considering the type of crime committed, Mr. Hauke’s lack of criminal history, and Mr. Hauke’s genuine remorse, any term of incarceration coupled with the shame and embarrassment that has already been suffered is significant,” she wrote. “The likelihood that Mr. Hauke will return to crime is virtually nonexistent, which signifies that a sentence well below the suggested range is warranted.”

Hauke gained credibility with investors by keeping a high profile in the media with appearances on CNBC, Fox Business Network, Bloomberg Television and Bloomberg Radio. He wrote a regular investing column for IBJ for nine years. The newspaper discontinued the column when the fraud investigation began.

Hauke was only 29 in 1999 when he incorporated Samex Capital Partners, the state’s first hedge fund. He previously was a stockbroker and trader, first in New York and then in Florida.