Young investment whiz charged with fraud

Yagalla started out as a successful money manager, with timely investments in Internet and high-tech stocks. But as the stocks took a dramatic dive early this year, his financial empire crumbled.

Prosecutors say that in mid-October, days before federal agents arrested him at his Delaware mansion, he tried to raise cash to pay off investors and attempted to borrow $500,000 from a Las Vegas casino against his overdrawn brokerage account.

While some investors, particularly the ones who made money early on, still support Yagalla, others have been ruined.

Perry Scarfo, a Delaware hair salon owner, invested $750,000, according to a lawsuit filed on his behalf. His lawyer Francis Pileggi described Scarfo and other Yagalla investors as "hardworking people who are in shock that their money has disappeared."

Yagalla has an unlisted phone number and could not be reached for comment Sunday.

Auditors said his hedge fund posted gains of more than 60 percent in 1999, three times what the Standard & Poor's 500 averaged. His promotional literature boasted of an experienced staff that included a former Dean Witter Reynolds vice president, two investment bankers and three securities brokers from an established New York brokerage house.

But the SEC says Yagalla lied when he told investors this year that his fund was profitable. Instead, the SEC said, it was running out of money, and Yagalla was using some of the cash on his homes and cars, including two Ferraris and a $310,000 Bentley.

The SEC says the fund is now almost entirely gone.

Yagalla, who was arrested Oct. 18, is free on $250,000 bond. His lawyers initially said he would fight the charges, but they did not return calls seeking comment last week.

One investor, Nebraska uniform-company owner Doug Dudley, told the Philadelphia Inquirer he was so impressed with Yagalla when he met him four years ago investing in an oil well that he gave him another $100,000 to invest - even though the oil well went bust. The investments in Yahoo, Dell and other high-tech stocks doubled Dudley's money.

Yagalla was "intellectual-wise, an exceptional young man. He seemed to have the knowledge of many 30- and 40-year-olds regarding the stocks," said Dudley, 72. "I hope he is not in too deep."