A former executive of Prophecy Asset Management LP, Jeffrey Spotts, appeared in federal court in Trenton, New Jersey, on charges related to a $294 million securities fraud scheme. Acting U.S. Attorney and Special Attorney Alina Habba announced the arraignment.
Spotts, 58, from Summit, New Jersey, faces an indictment that includes conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud. He appeared before U.S. District Court Judge Michael A. Shipp.
John Hughes, also 58 and from Mahwah, New Jersey—identified as a co-conspirator—has previously pleaded guilty to securities fraud charges connected to the same case.
According to the indictment, Prophecy Asset Management solicited investments and managed funds that at their peak totaled over $360 million in assets. Spotts co-founded the firm with Hughes and served as Chief Executive Officer and Portfolio Manager between January 2015 and March 2020.
The indictment alleges that Spotts and Hughes misrepresented Prophecy’s trading strategy to investors by claiming it used a “first-loss” approach involving multiple sub-advisors who provided cash collateral against losses. They also told investors that sub-advisors facing significant losses would be required to replenish collateral or have their allocations suspended or terminated if necessary.
In reality, most of the funds’ capital was allocated to one primary sub-advisor without requiring sufficient cash collateral for potential losses. The indictment states that even after this sub-advisor incurred approximately $290 million in losses—far exceeding his collateral—Spotts and Hughes did not suspend his activities or inform investors about these risks. Instead, they allegedly concealed these facts through fake transactions and forged documents.
The fraudulent conduct ultimately led to substantial trading losses that eliminated Prophecy’s funds and resulted in more than $294 million in investor losses.
If convicted on all counts, Spotts faces up to 20 years in prison for each wire fraud-related charge with fines up to $250,000 per count; five years for conspiracy to commit securities fraud with a similar fine; and up to 20 years plus a $5 million fine for securities fraud itself. Sentencing for John Hughes is scheduled for March 10, 2026.
The Securities and Exchange Commission (SEC) has filed civil complaints against both Spotts and Hughes based on this conduct.
Acting U.S. Attorney Habba credited special agents of the FBI’s Philadelphia Division under Special Agent Wayne A Jacobs with investigating the case. She also acknowledged assistance from Margaret Ryan of the SEC’s Division of Enforcement.
Assistant U.S. Attorneys Aaron L. Webman (Newark) and Martha K. Nye (Trenton) are prosecuting the case.
“The charges and allegations contained in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.”
Defense counsel for Spotts is Lee Vartan.
