SEC ALLEGES PONZI SCHEME RAISED $31 MILLION BY TARGETING PROFESSIONAL ATHLETES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23232 / April 7, 2015
Securities and Exchange Commission v. Capital Financial Partners, LLC et al., Civil Action No. 15-cv-11447-IT
SEC Obtains Asset Freezes in Ponzi Scheme Involving Loans to Professional Athletes

The Securities and Exchange Commission today announced fraud charges against a former professional football player and others, alleging they operated a Ponzi scheme that raised more than $31 million from investors who were promised profits from loans to professional athletes.

The SEC's complaint was unsealed late yesterday after being filed in federal court in Boston on April 1. The court entered asset freezes and other preliminary relief that same day against the defendants.

According to the SEC's complaint, former professional football player William D. Allen and his business partner Susan C. Daub claimed to make loans to professional athletes who were short of cash. Allen and Daub told investors that they could profit by funding the loans and receiving interest of up to 18 percent paid by the athletes. The complaint alleges that from July 2012 through February 2015, the defendants paid approximately $20 million to investors while receiving a little more than $13 million in loan repayments from athletes. To fill the nearly $7 million gap, Allen and Daub used money from some investors to pay other investors, the hallmark of a Ponzi scheme.

The SEC's complaint alleges that Allen of Davie, Fla., and Daub, a financial professional formerly of Acton, Mass. who now lives in Coral Springs, Fla, advanced approximately $18 million to athletes while raising more than $31 million from investors. Allen and Daub allegedly misled investors about the terms, circumstances, and even the existence of some of the loans and used some investor funds to pay personal expenses such as charges at casinos and nightclubs, or to fund other business ventures.

The SEC's complaint alleges that Allen, Daub, Florida-based Capital Financial Partners Enterprises LLC, and Boston-based Capital Financial Partners LLC and Capital Financial Holdings LLC violated federal anti-fraud laws and related SEC anti-fraud rules. In addition to the relief obtained last week, the SEC is seeking a court order to restrain the defendants from violating the same laws and to require them to return their allegedly ill-gotten gains with interest and pay civil monetary penalties.

Four other entities owned or controlled by Allen, Daub, or both are named in the complaint as relief defendants based on their receipt of investor funds. The SEC is seeking to have the entities - WJBA Investments LLC, Insurance Depot of America LLC, Simplified Health Solutions LLC, and Simplified Health Solutions 2 LLC - return their allegedly ill-gotten gains with interest.

The SEC's investigation was conducted by Michael J. Vito, Frank C. Huntington, Patrick Noone, and Celia D. Moore of the Boston Regional Office.

SEC CHARGES, FREEZES ASSETS OF "VIRTUAL CONCIERGE MACHINES" (VCM) ALLEGED PONZI SCHEMERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a South Florida-based Ponzi scheme targeting investors through YouTube videos and selling them investments in a product called virtual concierge machines (VCMs) that would purportedly generate guaranteed returns of 300 to 500 percent in four years.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges.

The SEC alleges that Joseph Signore of West Palm Beach, Paul L. Schumack II of Pompano Beach, and their respective companies JCS Enterprises Inc. and T.B.T.I. Inc. falsely promised hundreds of investors nationwide that their funds would be used to purchase ATM-like machines that businesses could use to advertise products and services via touch screen and printable tickets or coupons.  Investors supposedly needed to do nothing to earn returns on their investment in a VCM, which would purportedly be placed at such locations as hotels, airports, and stadiums where they would derive revenue from the businesses paying to advertise through them.  However, instead of advertising revenue serving as the driving force behind the returns paid to investors, the two men and their companies paid returns to earlier investors using money from newer investors.  Signore and Schumack also diverted millions of dollars in investor funds for their personal use and other unrelated expenses.

“Signore and Schumack touted VCMs as a revolutionary enterprise and fail-safe investment based on a stream of advertising revenue that would generate the guaranteed returns paid to investors,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “However, the advertising revenue was virtually non-existent and investors aren’t enjoying the riches touted on YouTube.”

According to the SEC’s complaint unsealed today in U.S. District Court for the Southern District of Florida, Signore, Schumack, JCS, and T.B.T.I. fraudulently raised more than $40 million since at least 2011 by guaranteeing exorbitant returns.  The SEC alleges that JCS Enterprises promoted VCMs through YouTube videos, e-mail solicitations, and investor seminars.  In one YouTube video, an apparent investor is polishing his new Cadillac as a friend proclaims, “What an amazing car! How can you afford this?”  The investor responds, “My Virtual Concierge.”  A similar scene ensues with a different investor showing a friend her new pool.  A spokesperson appears and asks the viewer, “Do you want to make more money?  Then it is time for you to own a Virtual Concierge.”

The SEC alleges that Signore, Schumack, and their companies promised to locate, place, and manage the VCMs while informing investors where their VCMs were located.  Investors were to be provided a password to allow them online access to monitor the activity of their VCMs.  However, VCMs were not placed anywhere near the rate of those purchased by investors, who were never provided the locations of their VCM and could not track activity as promised.  The scheme collapsed in typical Ponzi fashion once new investor funds dried up.  The majority of investors stopped receiving their monthly payments in January 2014, yet Signore and Schumack continued to solicit new investors while fabricating excuses to placate irate investors no longer receiving their returns.  JCS went so far as to issue a press release claiming that TBTI had defrauded JCS and it was “investigating the matter.”

Glenn S. Gordon, associate director of the SEC’s Miami Regional Office, said, “The defendants never told investors the most important way in which these machines resembled ATMs – as a source of ready cash from investors that the defendants used for their own benefit.”

The SEC also alleges that Signore and Schumack misappropriated investor funds for themselves while never telling investors they would do so.  Signore used investor funds from accounts at JCS to divert approximately $2 million directly to himself and family members. Signore also routed investor money to unrelated business ventures he operates with his wife.  Debit charges from JCS accounts indicate that approximately $56,000 in investor funds were spent at restaurants, merchandising stores, and a tanning salon as well as other credit card bills.  Money from T.B.T.I’s accounts was similarly used for personal expenses.  For example, Schumack’s wife signed a check for $500,000 made out to the IRS.  T.B.T.I. also has transferred approximately $4 million from its investor account to an unrelated account from which Schumack and others executed more than 100 cash withdrawals totaling around $4.8 million, which was 91 percent of the account balance.  Another $23,000 of investor money was used by Schumack for personal expenses including restaurants, merchandising stores, and a nutrient therapy center.

The SEC’s complaint charges JCS Enterprises, T.B.T.I., Signore, and Schumack with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 along with Rule 10b-5.  The SEC seeks disgorgement of ill-gotten gains, prejudgment interest, and financial penalties among other relief for investors.  The Honorable Donald Middlebrooks granted the SEC’s request for a temporary restraining order and a temporary asset freeze against JCS, T.B.T.I., Signore and Schumack, and further required the defendants to provide accountings.  Judge Middlebrooks also entered an order appointing James D. Sallah, Esq. as receiver for JCS and T.B.T.I.  A court hearing has been scheduled for April 17.

The SEC’s investigation, which is continuing, has been conducted by Fernando Torres, Linda S. Schmidt, Vincent T. Hull, and Mark Dee in the Miami Regional Office.  The case has been supervised by Jason R. Berkowitz.  The SEC’s litigation is being led by Russell Koonin and Mr. Hull.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida as well as the Federal Bureau of Investigation, Florida Office of Financial Regulation, and Texas State Securities Board.

SEC OBTAINS EMERGENCY RELIEF IN PONZI SCHEME THAT TARGETED JAPANESE INVESTORS

FROM:  U.S. SECURITY AD EXCHANGE COMMISSION 
SEC Obtains Asset Freeze and Other Emergency Relief in Ponzi Scheme Targeting Investors in Japan

The Securities and Exchange Commission announced an emergency action to freeze the assets of a Las Vegas resident and his companies in connection with a Ponzi scheme that defrauded thousands of investors living primarily in Japan.

The SEC alleges that Edwin Yoshihiro Fujinaga and his company MRI International, Inc. raised more than $800 million from investors who were told that their money would be used to buy medical accounts receivable (MARs) that medical providers in the United States held against insurance companies. Fujinaga and MRI represented that the company used investors' money to buy MARs from medical providers at a discount and tried to recover the full value of the MARs from the insurance companies. Fujinaga and MRI represented that they used investor money solely and exclusively to buy MARs.

According to the SEC's complaint, which was filed under seal on September 11, 2013 and unsealed last week in the U.S. District Court for the District of Nevada, MRI was a fraudulent Ponzi scheme designed to misappropriate money from investors. Fujinaga and MRI used investor money to pay the principal and interest due to earlier investors, for the expenses of MRI and other businesses owned by Fujinaga, and to buy luxury cars and pay Fujinaga's credit card bills, alimony, and child support.

The Honorable James C. Mahan for the U.S. District Court for the District of Nevada granted the SEC's request for a temporary restraining order, asset freeze and other emergency relief against MRI, Fujinaga, and CSA Service Center LLC, as a relief defendant.

The Commission's complaint alleges that Fujinaga and MRI violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks disgorgement of ill-gotten gains from Fujinaga, MRI, and relief defendant CSA, as well as financial penalties, permanent injunctions and other emergency relief.

The SEC's investigation, which is continuing, has been conducted by Danette R. Edwards and Thomas C. Swiers and supervised by Gregory G. Faragasso. The JFSA's Yuichiro Enomoto, who was seconded to the SEC, provided valuable assistance. The SEC's litigation is being led by Richard E. Simpson and Robert I. Dodge. The SEC appreciates the assistance of the JFSA, SESC, and the State of Nevada Division of Mortgage Lending.

MAN AND COMPANY IN TROUBLE WITH CFTC FOR ALLEGED FRAUD IN COMMODITY AND STOCK FUTURES

Photo Credit:  U.S. Marshals Service.

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Charges North Carolina Resident Michael Anthony Jenkins and his Company, Harbor Light Asset Management, LLC, with Solicitation Fraud, Misappropriation, and Embezzlement in Ponzi Scheme

Defendants charged with fraudulently soliciting and accepting at least $1.79 million from approximately 377 persons

In a related criminal action, Jenkins was indicted for securities fraud and is in custody awaiting trial

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal civil enforcement action in the U.S. District Court for the Eastern District of North Carolina, charging Michael Anthony Jenkins of Raleigh, N.C., and his company, Harbor Light Asset Management, LLC (HLAM), with operating a Ponzi scheme for the purpose of trading E-mini S&P 500 futures contracts (E-mini futures). From at least January 2011 through January 2012, the defendants fraudulently solicited at least $1.79 million from approximately 377 persons, primarily located in Raleigh, N.C., in connection with the scheme, according to the complaint.

The CFTC complaint also charges Jenkins, the owner and President of HLAM, with embezzlement and failure to register with the CFTC as a futures commission merchant. Furthermore, Jenkins allegedly misappropriated $748,827 of investors’ funds to trade gold and oil futures, stock index futures, and E-mini futures in his personal accounts. Jenkins also used misappropriated funds to pay for charges at department and discount stores and gasoline stations, and for cellular phone bills and airline tickets, according to the complaint.

The CFTC complaint, filed on November 20, 2012, alleges that HLAM’s Investment Agreement falsely represented to investors that their investment was solely for investing in E-mini futures and that investors’ funds would be immediately wired to a specific trading account. However, according to the complaint, most of investors’ funds were misappropriated by HLAM and Jenkins. To conceal and continue the fraud, Jenkins allegedly sent trading spreadsheets and statements to investors that falsely reported trades and profits earned and inflated the value of investments. The defendants’ fraudulent conduct resulted in a loss of approximately $1.3 million in investor funds, consisting of $1.16 million in misappropriated and embezzled funds and $140,000 in trading losses, according to the complaint.

In its continuing litigation, the CFTC seeks restitution, return by Jenkins and HLAM of all ill-gotten gains received, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act, as charged.

In a related criminal action by the Securities Division of the North Carolina, Department of the Secretary of State, Jenkins was indicted on August 20, 2012 on three counts of securities fraud in The General Court of Justice, State of North Carolina, Wake County, and is in custody awaiting trial.

The CFTC appreciates the assistance of the Securities Division of the North Carolina Department of the Secretary of State.

SEC CHARGES OREGON-BASED HEDGE FUND MANAGER WITH RUNNING $37 MILLION PONZI SCHEME

Photo: Oregon's Mt. Hood Territory. Credit: Wikimedia.

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today filed fraud charges against a Portland, Oregon-based investment adviser who perpetrated a long-running Ponzi scheme that raised over $37 million from more than 100 investors in the Pacific Northwest and across the country.

The SEC alleges that Yusaf Jawed used false marketing materials that boasted double-digit returns to lure people to invest their money into several hedge funds he managed. He then improperly redirected their money into accounts he personally controlled. As part of the scheme, Jawed created phony assets, sent bogus account statements to investors, and manufactured a sham buyout of the funds to make investors think their hedge fund interests would soon be redeemed. Jawed misused investor money to pay off earlier investors, pay his own expenses and travel, and create the overall illusion of success and achievement to impress investors.

According to the SEC’s complaint filed in federal court in Portland, Jawed managed a number of hedge funds through at least two companies he controlled: Grifphon Asset Management LLC and Grifphon Holdings LLC. Jawed’s marketing materials claimed that the Grifphon funds earned double-digit returns year after year even as the S&P 500 Index declined. For certain funds, Jawed also falsely claimed they would invest in publicly-traded securities and that their assets were maintained at reputable financial institutions.

The SEC alleges that Jawed instead invested very little of the more than $37 million that he raised from investors. For one fund, 70 percent of the money raised was either paid in redemptions to investors in other funds, paid to finders, or merely transferred to accounts belonging to Grifphon Asset Management or other entities that Jawed controlled. Jawed concealed the fraud by telling Grifphon’s bookkeepers that the money transfers represented purchases of offshore bonds – though in reality the purported investment was a sham entity supposedly managed by Jawed’s unemployed aunt who lives in Bangladesh.

According to the SEC’s complaint, Jawed further deceived investors as the funds were collapsing by telling them that independent third parties were buying the Grifphon funds’ alleged assets at a premium. In truth, the so-called third-parties were sham entities originally formed by Grifphon and Jawed containing no assets, no income, and no ability to pay for the funds’ alleged assets.

The SEC’s complaint against Jawed additionally charges Robert P. Custis, an attorney who Jawed hired to assist him in the fraud. Custis sent false and misleading statements to investors about the status of the purported purchase of the Grifphon funds’ assets. Custis consistently misrepresented that this purchase was imminent and would result in investors’ investments being repaid at a profit.

By engaging in the above conduct, Jawed, GAM, and Grifphon Holdings violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. By engaging in the above conduct, Custis violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of Section 206(4) and Rule 206(4)-8 thereunder. The Commission seeks a permanent injunction, disgorgement and prejudgment interest, civil penalty, and other relief as appropriate against them.

The SEC filed separate complaints against two others connected to Jawed’s scheme. Those complaints allege that Jacques Nichols – a Portland-based attorney – falsely claimed to investors that an independent third party would pay tens of millions of dollars to buy the hedge funds’ alleged assets at a premium, and that Jawed’s associate, Lyman Bruhn, of Vancouver, Wash., ran a separate Ponzi scheme and induced investments through false claims he was investing in "blue chip" stocks.

Without admitting or denying the allegations, Nichols, Bruhn, and two entities Bruhn controlled (Pearl Asset Management, LLC and Sasquatch Capital Management, LLC) agreed to settle the SEC’s charges. Along with other relief, Bruhn consented to the entry of permanent injunctions against violations of the Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Along with other relief, Nichols consented to the entry of a permanent injunction against violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC’s litigation continues against Jawed, the two Grifphon entities, and Custis.

SEC CHARGES OWNER OF WEBSITE ZEEKREWARDS.COM WITH RUNNING A $600 MILLION PONZI SCHEME

THE SECURITIES AND EXCHANGE COMMISSION
　
Washington, D.C., Aug. 17, 2012 – The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze to halt a $600 million Ponzi scheme on the verge of collapse. The emergency action assures that victims can recoup more of their money and potentially avoid devastating losses.
　
The SEC alleges that online marketer Paul Burks of Lexington, N.C. and his company Rex Venture Group have raised money from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com, which they began in January 2011.
　
According to the SEC’s complaint filed in federal court in Charlotte, N.C., customers were offered several ways to earn money through the ZeekRewards program, two of which involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.
　
The SEC alleges that investors were collectively promised up to 50 percent of the company’s daily net profits through a profit sharing system in which they accumulate rewards points that they can use for cash payouts. However, the website fraudulently conveyed the false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the "net profits" paid to investors have been comprised of funds received from new investors in classic Ponzi scheme fashion.
　
"The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors," said Stephen Cohen, an Associate Director in the SEC’s Division of Enforcement. "ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor."
　
The SEC’s complaint alleges that the scheme is teetering on collapse with investor funds at risk of dissipation without its emergency enforcement action. Last month, ZeekRewards brought in approximately $162 million while total investor cash payouts were approximately $160 million. If customers continue to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, ZeekRewards’ cash outflows would eventually exceed its total revenue.
　
Burks has agreed to settle the SEC’s charges against him without admitting or denying the allegations, and agreed to cooperate with a court-appointed receiver.
　
According to the SEC’s complaint, ZeekRewards has paid out nearly $375 million to investors to date and holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions. Those funds will be frozen under the emergency asset freeze granted by the court at the SEC’s request. Meanwhile, Burks has personally siphoned several million dollars of investors’ funds while operating Rex Venture and ZeekRewards, and he distributed at least $1 million to family members. Burks has agreed to relinquish his interest in the company and its assets plus pay a $4 million penalty. Additionally, the court has appointed a receiver to collect, marshal, manage and distribute remaining assets for return to harmed investors.
　
The SEC’s investigation was conducted by Brian M. Privor and Alfred C. Tierney in the SEC’s Enforcement Division in Washington D.C. The SEC acknowledges the assistance of the Quebec Autorite des Marches Financiers and the Ontario Securities Commission.

INNOVATIVE ENTREPRENEUR ALLEGEDLY CREATED PONZI-LIKE MORTGAGE INVESTMENT BUSINESS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., June 28, 2012 — The Securities and Exchange Commission today announced that it has obtained an emergency court order to halt an alleged Ponzi-like scheme operated by Small Business Capital Corp. and its principal Mark Feathers, who raised $42 million by selling securities issued by Investors Prime Fund LLC and SBC Portfolio Fund LLC - two mortgage investment funds they controlled.

The SEC alleges that more than 400 investors were attracted to the funds by promises that profits from mortgage investments would yield annual returns of 7.5 percent or more. In reality, Feathers operated a Ponzi-like scheme by paying returns to investors that came partly from fund profits and partly from other investors.

“Feathers raised millions from investors by promising high returns,” said John McCoy, Associate Regional Director of the SEC’s Los Angeles Office. “The returns turned out to be too good to be true and were funded in part with new investors’ money.”

The SEC alleges that from 2009 to early 2012, Feathers improperly transferred more than $6 million from the funds to Small Business Capital to pay its expenses, including substantial payments to Feathers. According to the SEC, the defendants had the funds account for the transfers in a way that disguised the depletion of fund assets, and did not tell investors that Small Business Capital’s ability to repay was uncertain and that it was only able to make the interest payments owed to the funds by borrowing more from them.
In addition, the SEC alleges that investors were not told that in February and March 2012, the defendants caused one fund to sell mortgages to the other fund at an inflated price, thus generating a “profit” for the selling fund so it could pay Small Business Capital management fees of more than $575,000. The SEC also charged Feathers and Small Business Capital for Small Business Capital’s effecting transactions in the funds’ securities without being registered as a broker-dealer with the SEC.

The Honorable Edward J. Davila for the U.S. District Court for the Northern District of California granted the SEC’s request for a temporary restraining order and asset freeze against Feathers, Small Business Capital, and the funds, and appointed Thomas A. Seaman as a temporary receiver over Small Business Capital and the funds. Judge Davila has scheduled a court hearing for July 10, 2012, on the SEC's motion for a preliminary injunction.

Susan Hannan and Roger Boudreau conducted the investigation and John Bulgozdy will lead the litigation. They work in the SEC's Los Angeles Regional Office.

BROKER CHARGED IN ASTROLOGY-BASED INVESTMENT PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C., June 21, 2012 – The Securities and Exchange Commission today charged that a former broker in Orlando, Fla., defrauded investors in an astrology-based Ponzi scheme.

The SEC alleges that Gurudeo “Buddy” Persaud lured family, friends, and others into investing in his firm, White Elephant Trading Company LLC, by falsely guaranteeing their money would be safe and yield lofty returns ranging from 6 to 18 percent. Persaud told investors he would invest in the debt, stock, futures, and real estate markets, but did not reveal that his trading strategy was based on his belief that markets are affected by gravitational forces.

According to the SEC’s complaint filed in U.S. District Court for the Middle District of Florida, Persaud used investors’ money to make payments to other investors, the hallmark of a Ponzi scheme. Persaud also lost $400,000 of investor funds through his trading and diverted at least $415,000 to pay for his personal expenses, the SEC alleged. The same month Persaud began receiving investor money, he started using some of that money for his personal expenses. The SEC said that Persaud created phony account statements to hide his trading losses and give investors a false sense of security.

“Persaud preyed on people who trusted him by promising high and steady returns while hiding his unconventional trading strategy,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “When Persaud blatantly lied to investors and hid their losses through a Ponzi scheme, he should have known that an SEC enforcement action was in the stars.”

Persaud was a registered representative at a Florida-based broker-dealer but separately operated the now-inactive White Elephant, starting in mid-2007. In all, Persaud raised more than $1 million from at least 14 investors between July 2007 and January 2010.
The SEC alleges that in making trading decisions, Persaud chiefly relied on an Internet service that provided directional market forecasts based on lunar cycles and gravitational pull. Persaud’s strategy was premised on the idea that gravitational forces affect mass human behavior, and in turn, the stock market. For example, Persaud believed that when the moon exerts greater gravitational pull on the Earth, people feel dejected and are more inclined to sell securities.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Persaud to enjoin him from future violations of the federal securities laws.

The SEC’s investigation was conducted in the Miami Regional Office by Senior Counsel Rachel K. Paulose and Accountant Karaz S. Zaki under the supervision of Assistant Regional Director Elisha L. Frank, with assistance from examiners Anson Kwong and Brian H. Dyer, Examination Manager George Franceschini, Assistant Regional Director Nicholas A. Monaco, and Associate Regional Director John C. Mattimore. Amie Riggle Berlin will lead the SEC’s litigation.

14 SALES AGENTS CHARGED BY SEC WITH MISLEADING INVESTORS IN A $415 MILLION PONZI SCHEME

Photo Credit:  Wikimedia.
FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., June 12, 2012 — The Securities and Exchange Commission today charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.

The SEC alleges that the sales agents — which include four sets of siblings — falsely promised investor returns as high as 12 to 14 percent in several weeks when they sold investments offered by Agape World Inc. They also misled investors to believe that only 1 percent of their principal was at risk. The Agape securities they peddled were actually non-existent, and investors were merely lured into a Ponzi scheme where earlier investors were paid with new investor funds. The sales agents turned a blind eye to red flags of fraud and sold the investments without hesitation, receiving more than $52 million in commissions and payments out of investor funds. None of these sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.

“This Ponzi scheme spread like wildfire through Long Island’s middle-class communities because this small group of individuals blindly promoted the offerings as particularly safe and profitable,” said Andrew M. Calamari, Acting Regional Director for the SEC’s New York Regional Office. “These sales agents raked in commissions without regard for investors or any apparent concern for Agape’s financial distress and inability to meet investor redemptions.”

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, more than 5,000 investors nationwide were impacted by the scheme that lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to 300 months in prison and ordered to pay more than $179 million in restitution.

The SEC alleges that the sales agents misrepresented to investors that their money would be used to make high-interest bridge loans to commercial borrowers or businesses that accepted credit cards. Little, if any, investor money actually went toward this purpose. Investor funds were instead used for Ponzi scheme payments and the agents’ sales commissions, and Cosmo lost $80 million while trading futures in personal accounts. Meanwhile, the sales agents assuredly offered and sold Agape securities to investors despite numerous red flags of fraud including Cosmo’s prior conviction for fraud, the too-good-to-be-true returns, and the incredible safety of principal promised to investors. The sales agents also ignored Agape’s relatively small and unknown status as a private issuer of securities, Agape’s series of extensions and defaults, and other dire warnings about Agape’s financial condition. None of the Agape securities offerings were registered with the SEC.

The SEC’s complaint charges the following sales agents:
Brothers Bryan Arias and Hugo A. Arias of Maspeth, N.Y., who offered and sold Agape securities to at least 195 and 1,419 investors respectively. They received more than $9.5 million combined in commissions and payments.

Brothers Anthony C. Ciccone of Locust Valley, N.Y. and Salvatore Ciccone of Maspeth, N.Y., who offered and sold Agape securities to at least 535 and 348 investors respectively. They received more than $17 million combined in commissions and payments.

Brothers Jason A. Keryc of Wantagh, N.Y. and Michael D. Keryc of Baldwin, N.Y. Jason Keryc offered and sold Agape securities to at least 1,617 investors and received at least $16 million in commissions and payments. He also paid sub-brokers, including his brother, at least $7.4 million to sell Agape securities for him. Michael Keryc offered and sold Agape securities to at least 177 investors and received more than $1 million in commissions and payments.

Siblings Martin C. Hartmann III of Massapequa, N.Y. and Laura Ann Tordy of Wantagh, N.Y. Hartmann enlisted his sister in his sales effort while he worked as a sub-broker for Jason Keryc. Hartmann and Tordy offered and sold Agape securities to at least 441 investors and received more than $3.5 million in commissions and payments.

Christopher E. Curran of Amityville, N.Y., who worked as a sub-broker for Keryc. Curran offered and sold Agape securities to at least 132 investors and received at least $531,890 in commissions and payments.

Ryan K. Dunaske of Ronkonkoma, N.Y., who worked as a sub-broker for Keryc. Dunaske offered and sold Agape securities to at least 70 investors and received more than $700,000 in commissions and payments.

Michael P. Dunne of Massapequa, N.Y., who worked as a sub-broker for Keryc. Dunne offered and sold Agape securities to at least 99 investors and received more than $1.5 million in commissions and payments.

Diane Kaylor of Bethpage, N.Y., who offered and sold Agape securities to at least 249 investors and received at least $3.7 million in commissions and payments.

Anthony Massaro of Boynton Beach, Fla., who offered and sold Agape securities to at least 826 investors and received more than $5.9 million in commissions and payments.

Ronald R. Roaldsen, Jr. of Wantagh, N.Y., who worked as a sub-broker for Keryc. Roaldsen offered and sold Agape securities to at least 159 investors and received more than $600,000 in commissions and payments.

The SEC’s complaint charges Bryan and Hugo Arias, Anthony and Salvatore Ciccone, Jason and Michael Keryc, Dunne, Hartmann, Kaylor, Massaro, and Tordy with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint charges all 14 defendants with violations of Section 15(a) of the Exchange Act, and Sections 5(a) and 5(c) of the Securities Act.

The SEC thanks the U.S. Attorney’s Office of the Eastern District of New York and the Federal Bureau of Investigation for its assistance in this matter. Anthony Ciccone, Kaylor, Jason Keryc, and Massaro have previously been arrested on a criminal complaint charging each of them with conspiracy to commit mail fraud based on their conduct as Agape sales agents. The SEC also acknowledges the assistance of the U.S. Postal Inspection Service and the Commodity Futures Trading Commission.

The SEC’s investigation was conducted by Celeste Chase, Philip Moustakis, and Yvette Panetta in the New York Regional Office. The SEC’s related examination that led to the enforcement case was conducted by Richard A. Heaphy, Yvette Q. Panetta, Dawn M. Sacco, Joseph P. DiMaria, James E. Anastasia, Marianne Cala, and Steven Gilchrist. The SEC’s litigation will be led by Paul G. Gizzi and Mr. Moustakis.

CFTC ALLEGES MAN AND CO. RAN A $90 MILLION SILVER BULLION PONZI SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION
CFTC Charges Ronnie Gene Wilson of South Carolina and His Company, Atlantic Bullion & Coin, Inc., with Operating a $90 Million Silver Bullion Ponzi Scheme

Defendants are allegedly to have fraudulently sold contracts of sale of silver in a nationwide scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal civil enforcement action charging defendants Ronnie Gene Wilson (Wilson) and Atlantic Bullion & Coin, Inc. (AB&C), both of Easley, S.C., with fraud in connection with operating a $90 million Ponzi scheme, in violation of the Commodity Exchange Act (CEA) and CFTC regulations.

The CFTC’s complaint charges violations under the agency’s new Dodd-Frank authority prohibiting the use of any manipulative or deceptive device, scheme, or contrivance to defraud in connection with a contract of sale of any commodity in interstate commerce in violation of Section 6(c)(1) of the CEA, as amended, to be codified at 7 U.S.C. §§ 9, 15 and the CFTC’s implementing Regulation 180.1 (a). The complaint was filed on June 6, 2012, in the U.S. District Court for the Southern District of South Carolina, Anderson Division.

According to the complaint, since at least 2001 through February 29, 2012, Wilson and AB&C operated a Ponzi scheme, and, as part of the scheme, fraudulently offered contracts of sale of silver, a commodity in interstate commerce. Through their 11-year long scheme, the defendants allegedly fraudulently obtained at least $90.1 million from at least 945 investors for the purchase of silver.

From August 15, 2011, through February 29, 2012 – the time period during which the CFTC has had jurisdiction over the defendants’ actions under new provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – the defendants allegedly fraudulently obtained at least $11.53 million from at least 237 investors in 16 states for the purchase of contracts of sale of silver. The complaint further alleges that during this period, the defendants failed to purchase any silver whatsoever. Instead, the defendants allegedly misappropriated all of the investors’ funds and to conceal their fraud, issued phony account statements to investors.

In its continuing litigation, the CFTC seeks restitution to defrauded investors, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws.

The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office in Greenville, S.C., and the U.S. Secret Service.

CFTC Division of Enforcement staff responsible for this case are A. Daniel Ullman II, George H. Malas, Antoinette Chance, John Einstman, Richard Foelber, Paul G. Hayeck, and Joan M. Manley.

MAN ACCUSED OF RUNNING A $60 MILLION INVESTMENT FUND LIKE A PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

May 24, 2012
On May 24, 2012, the Securities and Exchange Commission charged an investment adviser in Scotts Valley, Calif., with running a $60 million investment fund like a Ponzi scheme and defrauding investors by touting imaginary trading profits instead of reporting the actual trading losses he had incurred.

The SEC alleges that John A. Geringer, who managed the GLR Growth Fund (Fund), used false and misleading marketing materials to lure investors into believing that the Fund was earning double-digit annual returns by investing 75% of its assets in investments tied to well-known stock indices like the S&P 500, NASDAQ, and Dow Jones. In reality, Geringer’s trading generated consistent losses and he eventually stopped trading entirely. To mask his fraud, Geringer paid millions of dollars in “returns” to investors largely by using money received from newer investors. He also sent investors periodic account statements showing fictitious growth in their investments.

According to the SEC’s complaint filed in federal court in San Jose, Geringer raised more than $60 million since 2005, mostly from investors in the Santa Cruz area. Geringer used fraudulent marketing materials claiming that the Fund had between 17 and 25 percent annual returns in every year of the Fund’s operation through investments tied to major stock indices. Although the Fund was started in 2003, marketing materials claimed 25 percent returns in 2001 and 2002 – before the Fund even existed. The marketing materials also falsely indicated a nearly 24 percent return in 2008 from investing mainly in publicly traded securities, options, and commodities, while the S&P 500 Index lost 38.5 percent.
The SEC alleges that Geringer’s actual securities trading was unsuccessful, and by mid-2009 the Fund did not invest in publicly traded securities at all. Instead, the Fund invested heavily in illiquid investments in two private startup technology companies. The rest of the money was paid to investors in Ponzi-like fashion and to three entities Geringer controlled that also are charged in the SEC’s complaint.

According to the SEC’s complaint, Geringer further lied to investors on account statements that falsely claimed “MEMBER NASD AND SEC APPROVED.” The SEC does not “approve” funds or investments in funds, nor was the Fund (or any related entity) a member of the NASD (now called the Financial Industry Regulatory Authority – FINRA). Geringer also falsely claimed that the Fund’s financial statements were audited annually by an independent accountant. No such audits were performed.

The SEC’s complaint alleges Geringer and three related entities violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Section 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint also alleges the defendants violated or aided and abetted violations of Section 26 of the Exchange Act, which bars persons from claiming the SEC has passed on the merits of a particular investment. The SEC’s complaint names the Fund as a relief defendant. The complaint seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains, civil monetary penalties, and other relief. Geringer, the Fund, and two of the GLR entities consented to the entry of a preliminary injunction and a freeze on the Fund’s bank account.

The SEC’s investigation, which is continuing, has been conducted by Robert J. Durham and Robert S. Leach of the San Francisco Regional Office. The SEC’s litigation will be led by Sheila O’Callaghan of the San Francisco Regional Office.
The SEC thanks the U.S. Attorney’s Office for the Northern District of California, Federal Bureau of Investigation, and FINRA for their assistance in this matter.

NEW JERSEY MAN CHARGED BY SEC WITH OPERATING A PONZI-LIKE REAL ESTATE SCHEME

Photo:  Wikimedia 

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., May 17, 2012 – The Securities and Exchange Commission today charged a New Jersey man with operating a Ponzi-like scheme involving a series of investment vehicles formed for the purported purpose of purchasing and managing rental apartment buildings in New Jersey and Pennsylvania.

The SEC alleges that David M. Connolly induced investors to buy shares in real estate investment vehicles he created through his firm Connolly Properties Inc. He promised investors monthly dividends based on cash-flow profits from rental income at the apartment buildings as well as the growth of their principal from the appreciation of the property. However, the real estate investments did not produce the projected dividends, and Connolly instead made Ponzi-like dividend payments to earlier investors using money from new investors. Connolly, who lives in Watchung, N.J., also siphoned off at least $2 million in investor funds for his personal use.

“David Connolly presented himself to investors as a successful real estate investment manager with a track record of paying consistent, high returns,” said George S. Canellos, Director of the SEC’s New York Regional Office. “In truth, Connolly’s operation was essentially a shell game intended to raise additional funds from new or existing investors in order to perpetuate his fraudulent scheme.”

The U.S. Attorney’s Office for the District of New Jersey, which conducted a parallel investigation of the matter, today announced that Connolly was indicted on one count of securities fraud among other criminal charges.

According to the SEC’s complaint filed in federal court in New Jersey, none of Connolly’s securities offerings in the investment vehicles were registered with the SEC as required under the federal securities laws. He began offering the investments in 1996 and ultimately raised in excess of $50 million from more than 200 investors in more than 25 investment vehicles. However, beginning in at least 2006, Connolly misrepresented to investors that their funds would be used exclusively for the property related to the particular vehicle in which they invested. Connolly instead commingled the funds in bank accounts that he alone controlled and used for a variety of purposes that weren’t disclosed to investors, including $2 million in payments he made to himself that vastly exceeded any dividends to which he would be entitled through his ownership stake. Between 2007 and 2010, Connolly also wrote checks to “cash” in excess of $2.5 million. Even after Connolly stopped making dividend payments to investors in April 2009, he still continued to pay himself dividends as well as a $250,000 “salary” out of investor funds.

The SEC alleges that Connolly lacked sufficient revenues from rental income at the apartment buildings, so he continued to raise millions of dollars for new investment vehicles. He used the funds to pay purported monthly cash-flow dividends in excess of 10 percent to investors in older investment vehicles. Connolly refinanced properties and improperly used the cash proceeds to continue the scheme, which ultimately collapsed in 2009 when new investor funds dried up and rental income was insufficient to support payments on the mortgages. The properties owned by the investment vehicles were forced into foreclosure, wiping out the equity of the investors.

The SEC’s complaint charges Connolly with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC’s complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investigation was conducted by Justin Smith and William Edwards in the New York Regional Office. Jack Kaufman will lead the litigation.

The SEC thanks the U.S. Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, 

and the Internal Revenue Service for their assistance in this matter.

THE MAN WHO ALLEGEDLY PONZIED THE FAITHFUL

FROM:  SEC
Washington, D.C., April 12, 2012 — The Securities and Exchange Commission today charged a self-described “Social Capitalist” with running a Ponzi scheme that targeted socially-conscious investors in church congregations.

The SEC alleges that Ephren W. Taylor II made numerous false statements to lure investors into two investment programs being offered through City Capital Corporation, where he was the CEO. Instead of investor money going to charitable causes and economically disadvantaged businesses as promised, Taylor secretly diverted hundreds of thousands of dollars to publishing and promoting his books, hiring consultants to refine his public image, and funding his wife’s singing career.

The SEC also charged City Capital and its former chief operating officer Wendy Connor, who lives in North Carolina and along with Taylor received hundreds of thousands of dollars from investors in salary and commissions.

“Ephren Taylor professed to be in the business of socially-conscious investing. Instead, he was in the business of promoting Ephren Taylor,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “He preyed upon investors’ faith and their desire to help others, convincing them that they could earn healthy returns while also helping their communities.”

According to the SEC’s complaint filed in federal court in Atlanta, Taylor strenuously cultivated an image of a highly successful and socially conscious entrepreneur. He marketed himself as “The Social Capitalist” and touted that he was the youngest black CEO of a public company and the son of a Christian minister who understands the importance of giving back. He authored three books and appeared on national television programs, and promoted his investment opportunities through live presentations, Internet advertisements, and radio ads. For instance, Taylor conducted a multi-city “Building Wealth Tour” during which he spoke to church congregations including Atlanta’s New Birth Church and at various wealth management seminars.

The SEC alleges that Taylor and City Capital offered two primary investments: promissory notes supposedly funding various small businesses, and interests in “sweepstakes” machines. In addition to promising high rates of return, Taylor assured investors that he had a long track record of success and that investor funds would be used to support businesses in economically disadvantaged areas. A portion of profits were to go to charity. Taylor devoted considerable time to denigrating traditional investment vehicles such as CDs, mutual funds, and the stock market, labeling them as “foolish” and “money losers.” He told audiences they could make far greater returns using their self-directed IRAs for investments in small businesses and sweepstakes machines offered by City Capital.

In reality, according to the SEC’s complaint, more than $11 million that Taylor and City Capital raised from hundreds of investors nationwide from 2008 to 2010 was instead used to operate the Ponzi scheme. Investor money was misused to pay other investors, finance Taylor’s personal expenses, and fund City Capital’s payroll, rent, and other costs. City Capital’s business ventures were consistently unprofitable, and no meaningful amounts of investor money were ever sent to charities.

The SEC’s complaint seeks disgorgement, financial penalties and permanent injunctive relief against City Capital, Taylor, and Connor as well as officer and director bars against Taylor and Connor.