PRIVATE EQUITY FOUNDER PLEADS GUILTY IN INVESTMENT FRAUD SCHEME INVOLVING MORE THAN $50 MILLION

NEW YORK — The founder and managing partner of a Manhattan-based private equity firm has pleaded guilty to four federal offenses in connection with an investment scheme involving more than $50 million raised from investors who were told their money would support early-stage health and wellness companies.

Jay Lucas, 71, of Portsmouth, New Hampshire, pleaded guilty before U.S. Magistrate Judge Robyn F. Tarnofsky to one count of securities fraud, one count of investment adviser fraud, one count of wire fraud, and one count of money laundering.

Lucas founded and managed Lucas Brand Equity LLC, also known as LBE, along with three private investment funds: Lucas Brand Equity LP, identified as Fund One; L.B. Equity Emerging Growth LP, identified as Fund Two; and L.B. Equity Wellness Growth L.P., identified as Fund Three.

Federal prosecutors said Lucas raised more than $50 million by representing to investors that their money would be placed into emerging companies operating within the health and wellness market. Instead, prosecutors said, much of the money was diverted toward personal expenses, unrelated business ventures, and payments to earlier investors.

“Lucas lied to investors to induce them into investing millions of dollars in private equity funds that he created, promising to invest their money in emerging companies in the health and wellness space,” U.S. Attorney for the Southern District of New York Jay Clayton said. “In reality, Lucas used much of the money to pay for personal expenses and ventures entirely unrelated to the funds, and to make Ponzi-like payments to other investors. Today’s plea reflects the continued commitment of this Office and our law enforcement partners to holding accountable investment advisers who abuse their investors’ trust to illegally enrich themselves.”

According to allegations contained in the indictment, Lucas had been systematically misappropriating investor funds since 2017.

Lucas represented LBE’s investment approach to investors by stating that the firm’s “core strategy is to invest in these small to mid-size emerging brands, provide value added services to differentiate them and catalyze growth to a sufficient scale for exit.”

The indictment alleged that the money did not consistently follow that stated investment strategy. Prosecutors accused Lucas of spending investor funds on personal obligations and interests that included alimony, rent, political consultants, and what authorities described as a vanity newspaper project in his hometown.

Lucas was also accused of using money obtained from newer investors to make Ponzi-style payments to earlier investors. Prosecutors said the transfers benefited Lucas while depriving the private funds and their portfolio companies of capital that was intended to support their operations and growth.

Federal prosecutors further alleged that Lucas directed investor money into Immunocologie, a luxury skincare company operated by his wife, without disclosing the resulting conflict of interest to investors.

According to the indictment, a substantial amount of the money directed toward Immunocologie was later spent on trips, social events, and ventures that failed to generate profits.

The indictment also alleged that Lucas arranged for Lucas Brand Equity LLC, rather than the investment funds whose money had supported the business, to receive a majority ownership interest in Immunocologie. That arrangement allegedly provided Lucas with an equity interest in the company while denying his investment clients the corresponding ownership interest.

Prosecutors said the movement and use of investor money left the three funds chronically undercapitalized. The funds allegedly struggled to meet basic operating expenses, including the payment of salaries to LBE employees.

Internal communications cited by federal prosecutors showed that employees had raised concerns about Lucas’s handling of investor funds. Employees described his expenditures as “not spending on LBE,” “literally fraudulent,” and “a huge betrayal of investor trust and most likely illegal.”

Those descriptions of the underlying conduct were presented as allegations in the indictment. Lucas has now admitted criminal responsibility by pleading guilty to the four federal counts identified in his plea.

The securities fraud, wire fraud, and money laundering counts each carry a maximum potential prison sentence of 20 years. The investment adviser fraud count carries a maximum potential prison sentence of five years.

Those statutory maximums are established by Congress and do not constitute the sentence Lucas will receive. His sentence will be determined by a federal judge after considering the applicable law and the circumstances of the case.

The FBI conducted the investigation. The U.S. Securities and Exchange Commission provided assistance and cooperation during the investigation.

Clayton praised the work of the FBI and acknowledged the SEC’s role in assisting federal investigators.

The prosecution is being handled by the Securities and Commodities Fraud Task Force of the U.S. Attorney’s Office for the Southern District of New York. Assistant U.S. Attorneys Adam S. Hobson and David J. Robles are responsible for the prosecution.

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