Prophecy Asset Management scandal: Investors lose $350 million!

Prophecy Asset Management scandal: Investors lose $350 million!

The U.S. The Securities and Exchange Commission (SEC) has made serious allegations against the New York asset management company Prophecy Asset Management and its CEO Jeffrey Spotts. In a lawsuit released on October 13, 2025, the SEC alleges that the company deceived investors over several years with false promises about the safety of their investments. These allegations come at a time when trust in financial institutions is becoming increasingly important.

The SEC reports that Prophecy raised more than $500 million from investors while claiming that the funds were protected by a network of professional traders who posted cash as collateral. However, instead of directing the funds to subadvisors for trading liquid securities as promised, much of the money went to a subadvisor, Brian Kahn. Kahn ran into massive problems with his trading activities, which far exceeded the security deposited and thus led to significant losses.

Hidden losses and deception

The SEC alleges in its lawsuit that Spotts, Kahn and Prophecy's compliance officer, John Hughes, created fake documents and conducted sham transactions to hide mounting losses from auditors and administrators. These deceptive practices did not go unnoticed and resulted in losses ballooning to over $350 million by March 2020. As a result of these severe financial difficulties, Prophecy was forced to suspend investor withdrawals indefinitely.

In addition to the principal charges, the SEC charges Prophecy and Spotts with violating Exchange Act Rule 10b-5(b) and Advisers Act Rule 206(4)-8(a)(1). The regulator is seeking injunctions, civil penalties and the return of profits from the fraudulent activities. In addition, Spotts and Kahn are to be banned from working as managers in the financial industry in the future.

The relevance of the case

The Prophecy Asset Management case exemplifies the challenges and risks that investors face in the financial market. The allegations underline the importance of transparency and control in asset management. It is becoming clear again and again how important regulatory oversight is to prevent fraud and mismanagement that endanger investor confidence.

With these allegations and the associated lawsuit, the SEC hopes to protect the integrity of the financial market and punish potential future violations. Investors can only hope that such scandals will soon become a thing of the past and that the industry will be protected more effectively through stricter regulations and better risk management.

For more information on this topic, see reporting by Daily HODL.