The manager of Katsu Fund, a hedge fund marketed as using artificial intelligence (AI) to guide its trading strategies, has been arrested and charged with securities fraud, wire fraud, and money laundering, according to a report by Investment Executive.

According to an indictment unsealed in a New York federal court on 14 November, Kanen Flowers, who later operated the fund under the name of Next Alpha, is accused of misleading investors about the fund’s portfolio, performance, and assets under management.

US authorities allege that Flowers conducted a scheme to defraud investors by using material misrepresentations and omissions to persuade them to invest in and maintain their investments in the fund.

Prosecutors also claim that when the fund was eventually shut down, Flowers fabricated excuses to explain missing assets, blaming cryptocurrency lenders and exchanges for capping withdrawals or seizing funds. However, authorities contend that Flowers had emptied the fund’s accounts months earlier, using the money for his own benefit.

Flowers was arrested in Arizona and is expected to be transferred to New York to face the charges. The allegations against him remain unproven in court.