Three local men were charged with fraud this week in New York federal court for allegedly bilking investors, including some who were elderly members of a New York church, out of more than $10 million.

The men, including a father-and-son pair, were part of a Long Island investment firm that allegedly defrauded investors by making false promises of returns of up to 50 percent to 75 percent and other misrepresentations to get them to invest in two hedge funds.

Instead of using the money for investments, prosecutors say, the defendants used most of it to buy jewelry, luxury cars, clothing, meals, trips and to lavishly renovate their offices. They lost the remaining money through bad trades, prosecutors say.

The three are among five men charged with conspiracy and two charges of securities fraud, according to the indictment unsealed Tuesday. They face up to 20 years in prison on the securities fraud charges.

The local men charged are:

• Aaron Riddle, 34, of Narvon.

• Robert Riddle, 59, of New Holland. He is Aaron Riddle's father and co-owner of Village Kitchen & Bath Design Gallery in Leola, which is co-owned with the investment firm.

• Timothy Smith, 35, of Ephrata.

The U.S. Securities and Exchange Commission also separately charged the men, and four others, in a civil fraud case alleging they defrauded investors of more than $12 million.

According to prosecutors, the men were part of Jadis Capital, which started two hedge funds, Logis Multi-Strategy and the Donum Fund, in 2005.

The men marketed the funds to investors including members of the Local Christian Assembly, a church in Forest Hills, N.Y. Robert Riddle is listed as an elder of the church and a Pennsylvania contact on its Web site. The church has a sister church in Reading.

Contacted at his New Holland home today, Robert Riddle said, "We're not guilty."

He declined other comments, saying he has been instructed by the court not to speak to anyone about the case. Aaron Riddle and Timothy Smith could not be reached for comment.

According to the filing in the federal indictment, the defendants were encouraged to market the hedge funds to those "near and dear" to them whom they knew they could "influence."

According to the SEC filing, the Jadis sales staff encouraged Logos investors, many who were elderly, disabled or on fixed incomes, to transfer their retirement savings or take out home equity loans for investments.

The men ultimately collected $12.3 million in investments between the two funds.

Some of that money was lost in bad trades. Some of it was used for luxury items, the SEC filing said.

For example, Aaron Riddle used his corporate credit card to buy a $4,275 watch.

Others used investor funds for the down payment and car payments on a $200,000 Bentley automobile, $9,280 in clothing, meals that cost from $2,408 to $5,000, and trips, some with wives and girlfriends, to Trinidad & Tobago, Paris and Switzerland.

The group also spent $1.5 million for their office space.

The men also collected salaries from investor funds. Aaron Riddle was paid $140,000 a year. His father, Robert, was paid $135,000 a year. Members of the Riddle family also were on the payroll, including Aaron Riddle's sister, who was not named in the filing, a college student who earned $55,000 as a secretary.

U.S. Attorney Benton J. Campbell, who announced the federal indictment, said, "These defendants abused their positions of influence and trust to solicit investments by fraud and line their own pockets."


Staff writer Cindy Stauffer can be reached at cstauffer@LNPnews.com or 481-6024.