Federal prosecutors don’t buy hedge fund manager Keenan Hauke’s assertion that he was victimized by a business partner who poured $4.7 million dollars into Michigan real estate investments early in the 2000s without his approval.

Hauke’s Samex Capital Partners hedge fund lost nearly the entire sum, and by 2004 Hauke had launched a sophisticated scheme to hide the losses from his clients, according to a criminal complaint unveiled Tuesday.

The scheme ended this spring, when a co-worker alerted investigators that something was awry. And on Tuesday, federal prosecutors charged the 40-year-old Fishers resident with one count of securities fraud, a charge that carries up to 25 years in prison.

Hauke had been a regular investing columnist for IBJ for nine years when news of the investigation broke in April and the newspaper canceled his column.

In an investigative story IBJ published in August, an attorney for Hauke said that Robert Beasley, another hedge fund manager whose firm had provided back-office administration for Hauke’s fund, had made the losing real estate investments without Hauke's knowledge or approval.

But court papers filed by prosecutors Tuesday said that that while “initially, the real estate transaction was initiated by [Beasley’s firm] ... Hauke ultimately approved the real estate investment made by the hedge fund.”

As IBJ reported Tuesday, Hauke has agreed to plead guilty to orchestrating a seven-year scheme that ultimately resulted in losses topping $7 million for 67 investors—many from Indianapolis, others scattered from North Carolina to California. The plea agreement, which requires court approval, would prevent the government from recommending a prison sentence of more than 17 years.

It’s not clear why the Michigan residential real estate investments went awry. However, in 2007, the Benton Spirit newspaper of Benton Harbor, Mich., listed nearly three dozen Samex-owned parcels in the area as being in foreclosure.

To avoid fessing up to clients, Hauke began producing fake account statements listing fictional investments and fake rates of return, according to prosecutors. They said he kept the scheme going by using funds from new investors to pay off earlier clients.

Prosecutors also allege Hauke diverted hundreds of thousands of dollars for personal use, including daily living expenses and overseas vacations.

They said he shifted assets among accounts to obscure his wrongdoing. After suffering the real estate losses, Hauke separated clients into the “Brokerage Group” and the “Real Estate Group.” He consolidated all the hedge fund’s legitimate investments into the Brokerage Group, while the Real Estate Group got the disastrous Michigan investments.

Investors put in the Real Estate Group didn’t know anything was amiss because Hauke generated fake account statements, investigators allege.

Prosecutors say Hauke favored himself and the other Indiana investors by putting them in the Brokerage Group. Investors in the Brokerage Group suffered much smaller losses since Hauke had moved all the non-real-estate investments to them.

But William Wendling, the court-appointed receiver trying to marshal assets and reduce investors' losses, said he may attempt to recover money from Samex clients in the Brokerage Group, given that they fared better only because of the way Hauke shifted assets.

Wendling has recovered $1.6 million so far by gaining control over bank accounts and selling some of Hauke’s possessions, including gold and silver coins. He might collect as much as $400,000 by selling Hauke’s Barbados condo.

Wayne Pomanowski, a New Jersey investor in Hauke’s hedge fund, said he didn’t concentrate his investments with Hauke and thus will be OK. But he said he has been in touch with many investors who are financially devastated.

“It’s a sad thing,” Pomanowski said. “I feel bad for people I have spoken to who basically are wiped out. If you listen in on those conversations, it is hard to be merciful.”

Investors said this fall that they felt comfortable with Hauke partly because of his high profile in the media—his investing column, for instance, as well as appearances on CNBC, Fox Business Network, Bloomberg Television and Bloomberg Radio.