A former Marine masqueraded as a successful hedge fund trader to defraud current and former military personnel, causing the U.S. Securities and Exchange Commission to obtain an emergency asset freeze to halt his scheme, the regulator said on Tuesday.

The SEC said Clayton Cohn, 26, lied to investors about his trading success and the performance of his Marketaction Capital Management hedge fund, raising $1.78 million from 24 investors through his Chicago-based firm, Marketaction Advisors LLC.

Cohn lured investors through his Veterans Financial Education Network, which purported to help veterans manage their money and by touting annualized returns reaching triple digits, according to a lawsuit filed in Chicago federal court.

Instead, the SEC said the Winnetka, Illinois, resident spent less than half what he raised on his fund's equity and equity options trading strategy and "lost what money he has invested."

It said some of the rest went toward "living the high life," including payments on a Los Angeles mansion, luxury sports car and "extravagant" nightclub tabs, as well as investments in start-ups focused on t-shirt designs, hair extensions and 3-D adult film production.

The SEC said it needed to intervene after Cohn refused to honor simultaneous redemptions by several of his investors.

"Cohn's hedge fund investors didn't have a chance to make a profit since he never invested most of their money and promptly lost the portion he did invest," Timothy Warren, acting director of the SEC's regional office in Chicago, said in a statement.

The lawsuit seeks a permanent ban on various securities law violations, disgorgement of ill-gotten gains, and civil fines.

"We are shocked and dismayed that the SEC filed this action," Clayton Cohn spokesman Howard Rosenburg told Reuters late on Tuesday. "Clayton has been cooperating with the SEC in its investigation and we were hoping to work with the SEC on bringing this matter to a resolution."

The case is SEC v. Cohn et al, U.S. District Court, Northern District of Illinois, No. 13-05586.