A former executive of Prophecy Asset Management LP, Jeffrey Spotts, appeared in federal court in Trenton, New Jersey, to face charges related to a $294 million securities fraud scheme. The indictment accuses Spotts, 58, of Summit, New Jersey, of conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud.
Spotts co-founded Prophecy Asset Management and served as its Chief Executive Officer and Portfolio Manager. Prosecutors allege that from January 2015 to March 2020, Spotts and his co-founder John Hughes misled investors about the firm’s trading strategy. According to the indictment, they told investors that Prophecy used a “first-loss” trading approach involving multiple sub-advisors who were required to provide cash collateral as protection against losses. Investors were also informed that if losses neared the amount of this collateral, Prophecy would take steps such as requiring more collateral or suspending trading by the sub-advisor.
However, authorities claim that most of the funds’ capital was allocated to one primary sub-advisor without enforcing the collateral requirement. Despite significant losses—approximately $290 million—exceeding available collateral, Spotts and Hughes did not halt allocations or trading for this sub-advisor. Instead, they allegedly concealed these facts from investors through false documents and transactions.
The alleged fraudulent activities led to substantial losses for investors when Prophecy’s funds collapsed. John Hughes previously pleaded guilty in connection with this scheme and is scheduled for sentencing on March 10, 2026.
The U.S. Securities and Exchange Commission has filed a civil complaint against Spotts based on similar conduct and had earlier filed a complaint against Hughes.
Acting U.S. Attorney and Special Attorney Alina Habba credited special agents of the FBI’s Philadelphia Division for their work on the investigation. She also acknowledged assistance from the Securities and Exchange Commission’s Division of Enforcement.
“The charges and allegations contained in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty,” stated officials.
Spotts is represented by defense counsel Lee Vartan.
Sentences for the charged offenses could result in up to 20 years in prison per count for wire fraud-related charges and up to $5 million in fines for securities fraud convictions.
