FBI arrests hedge fund manager James M. Nicholson

According to the complaint, the fraud includes providing prospective investors with materially false and misleading sales material and oral statements about returns, concealing Westgate's true financial condition through a fictitious accounting firm called Havener and Havener, and providing investors with fake audited financial statements from the fake firm.

Nicholson told investors his company had assets under management ranging from $600 million to $900 million when, in fact, the true value was "materially less." He set up the fake accounting firm with his own telephone numbers and driver's license through a virtual office arrangement, according to the complaint.

The investigation into Nicholson and his business dealings began in December, after Westgate investors heard about alleged Ponzi mastermind Bernard Madoff's $50 billion scheme and began trying to redeem their own investments in 11 different Westgate hedge funds, according to a statement from federal prosecutors.