SEC BRINGS CHARGES IN PONZI SCHEME INVOLVING FARM LOANS

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23246 / April 24, 2015

Securities and Exchange Commission v. Veros Partners, Inc., et al., Civil Action No. 15-cv-000659-JMS-MJD (S.D.Ind., filed April 22, 2015)

SEC Halts Fraudulent Farm Loan Scheme by Indianapolis Investment Adviser

The Securities and Exchange Commission today announced charges against an Indianapolis investment adviser, its president, two associates and several affiliated companies for engaging in two fraudulent farm loan offerings, in which they made ponzi scheme payments to investors in other offerings and paid themselves hundreds of thousands of dollars in undisclosed fees. The SEC obtained a temporary restraining order and emergency asset freeze to halt the scheme.

According to the SEC's complaint, filed in the U.S. District Court for the Southern District of Indiana, in 2013 and 2014, Veros Partners, Inc., its president, Matthew D. Haab, and two associates, attorney Jeffrey B. Risinger and Tobin J. Senefeld, fraudulently raised at least $15 million from at least 80 investors, most of whom were Veros advisory clients. The investors were informed that their funds would be used to make short-term operating loans to farmers, but instead, significant portions of the loans were to cover the farmers' unpaid debt on loans from prior offerings. According to the SEC's complaint, Haab, Risinger and Senefeld used money from the two offerings to pay millions of dollars to investors in prior farm loan offerings and to pay themselves over $800,000 in undisclosed "success" and "interest rate spread" fees.

In addition to Veros, Haab, Risinger, and Senefeld, the SEC charged Veros Farm Loan Holding LLC and FarmGrowCap LLC, the issuers of the offerings, and PinCap LLC. The SEC also charged registered broker-dealer Pin Financial LLC as a relief defendant.

The Honorable Jane Magnus-Stinson of the U.S. District Court for the Southern District of Indiana issued an asset freeze order against the defendants as well as a temporary restraining order prohibiting them from soliciting, accepting or depositing any monies from any actual or prospective investors, and in the case of Veros, any investors in private securities offerings. Judge Magnus-Stinson also ordered that a receiver be appointed. A preliminary injunction hearing has been scheduled for May 1, 2015.

The SEC's complaint charges the defendants with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and also charges Veros and Haab with violating Sections 206(1), 206(2) of the Investment Advisers Act, and Veros with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2. The SEC's complaint seeks permanent injunctions and disgorgement against all defendants and a financial penalty. The SEC's complaint names Pin Financial for the purposes of recovering proceeds it received from the fraud.

The SEC's investigation, which is continuing, has been conducted by Nicholas Eichenseer, Doressia Hutton, and Craig McShane and supervised by Kathryn Pyszka of the Chicago Regional Office. The litigation will be supervised by Robert Moye.

SEC CHARGES INVESTMENT ADVISORY FIRM WITH FAVORING CERTAIN CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against a San Diego-based investment advisory firm and its president for allegedly steering winning trades to favored clients and lying about how certain money was being spent.

The SEC’s Enforcement Division alleges that J.S. Oliver Capital Management and Ian O. Mausner engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested.  Meanwhile they doled out less profitable trades to other clients, including a widow and a charitable foundation.  The disfavored clients suffered approximately $10.7 million in harm.

The SEC’s Enforcement Division further alleges that Mausner and J.S. Oliver misused soft dollars, which are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment adviser’s client accounts.  If appropriately disclosed, an investment adviser may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients.  However, Mausner and J.S. Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that in no way benefited clients, such as a payment to Mausner’s ex-wife related to their divorce.

“Mausner’s fraudulent schemes were a one-two punch that betrayed his clients and cost them millions of dollars,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Investment advisers must allocate trades and use soft dollars consistent with their fiduciary duty to put client interests first.”

The SEC also charged Douglas F. Drennan, a portfolio manager at J.S. Oliver, for his role in the soft dollar scheme.

According to the SEC’s order instituting administrative proceedings, Mausner engaged in the cherry-picking scheme from June 2008 to November 2009 by generally waiting to allocate trades until after the close of trading or the next day.  This allowed Mausner to see which securities had appreciated or declined in value, and he gave the more favorably priced securities to the accounts of four J.S. Oliver hedge funds that contained investments from Mausner and his family.  Mausner profited by more than $200,000 in fees earned from one of the hedge funds based on the boost in its performance from the winning trades he allocated.  Mausner also marketed that same hedge fund to investors by touting the fund’s positive returns when in reality those returns merely resulted from the cherry-picking scheme.

According to the SEC’s order, the soft dollar scheme occurred from January 2009 to November 2011.  Mausner and J.S. Oliver failed to disclose the following uses of soft dollars:

More than $300,000 that Mausner owed his ex-wife under their divorce agreement.
More than $300,000 in “rent” for J.S. Oliver to conduct business at Mausner’s home.  Most of this amount was funneled to Mausner’s personal bank account.
Approximately $480,000 to Drennan’s company for outside research and analysis when in reality Drennan was an employee at J.S. Oliver.
Nearly $40,000 in maintenance and other fees on Mausner’s personal timeshare in New York City.
According to the SEC’s order, Drennan participated in the soft dollar scheme by submitting false information to support the misuse of soft dollar credits and approving some of the soft dollar payments to his own company.

The SEC’s order alleges that J.S. Oliver and Mausner willfully violated the antifraud provisions of the federal securities laws and asserts disclosure, compliance, and recordkeeping violations against them.  The SEC’s order alleges that Drennan willfully aided, abetted, and caused J.S. Oliver’s fraud violations in the soft dollar scheme.

The SEC’s investigation, which is continuing, has been conducted by Ronnie Lasky and C. Dabney O’Riordan of the Enforcement Division’s Asset Management Unit in the Los Angeles Regional Office.  The SEC’s litigation will be led by David Van Havermaat, John Bulgozdy, and Ms. Lasky.  The examination of J.S. Oliver was conducted by Ashish Ward, Eric Lee, and Pristine Chan of the Los Angeles office’s investment adviser/investment company examination program.

TWO CONVICTED FOR ATTEMPT TO SCAM A WEALTHY INVESTOR OUT OF $1 BILLION

FROM: U.S. DEPARTMENT OF JUSTICE
Tuesday, August 28, 2012
Two Investment Advisors Convicted in California of High Yield Investment Fraud

WASHINGTON – William J. Ferry, a former stock broker and investment advisor, and Dennis J. Clinton, a former real estate investment manager, were found guilty by a federal jury in Santa Ana, Calif., today for their roles in a conspiracy to defraud a wealthy investor of $1 billion in a high-yield investment fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division. The investor was, in reality, part of an undercover FBI team that posed as wealthy investors and investment managers in an effort to stop fraudsters before they actually harmed victims.

"Mr. Ferry and Mr. Clinton tried to dupe undercover agents into believing their high-yield investment program would earn them extremely high rates of return," said Assistant Attorney General Breuer. "In fact, Ferry and Clinton were conspiring to steal their money, along with the money of trusting investors. Undercover operations are an integral part of our efforts to stop financial fraudsters before they wipe out the life savings of innocent victims. Based on today’s verdict, the defendants will now pay a heavy price for their conduct."

Ferry, 70, of Newport Beach , Calif., and Clinton, 64, of San Diego, were each found guilty in U.S. District Court for the Central District of California of one count of conspiracy, two counts of mail fraud and six counts of wire fraud. They face a maximum penalty of 20 years in prison on each fraud count. They will be sentenced on Feb. 1, 2013.

Paul R. Martin, a former senior vice president and managing director of Bankers Trust, was found guilty in U.S. District Court for the Central District of California for his role in the scheme in a separate trial on Aug. 3, 2012. Martin, 63, of New Jersey, was convicted of one count of conspiracy, two counts of mail fraud and six counts of wire fraud. At sentencing, scheduled for Feb. 1, 2013, Martin faces a maximum penalty of 20 years in prison on each fraud count.

On Aug. 21, 2008, Ferry, Clinton and Martin were indicted along with Oregon resident John Brent Leiske, Canadian citizen and resident Alex Chelak, Iowa resident Richard Arthur Pundt, California resident Brad Keith Lee and Florida resident Ronald J. Nolte.

Evidence at trial established that, from February to December 2006, Ferry, Clinton, Martin and others conspired to promote a high-yield investment fraud scheme promising an extremely high return at little or no risk to principal. The defendants claimed that their high-yield investment program (HYIP) was a "Fed trade program" regulated by the "Fed" (Federal Reserve Bank), that they had to follow strict Fed guidelines, and that a Fed trade administrator administered their program, with compliance duties handled by a Fed compliance officer.

Investors also were told that once they had passed compliance, they would become registered in Washington, D.C., with the Fed. The defendants falsely represented to FBI undercover agents that they would arrange for them to meet a Federal Reserve official and/or the chairman of the board of a major U.S. bank to confirm the existence of the defendants’ HYIP. The defendants falsely claimed that these Fed investment programs existed primarily to generate funds for project funding and humanitarian purposes, such as Hurricane Katrina relief. They further falsely claimed that the promised profits from investing in a Fed program had to be divided, in equal amounts, with one portion going for some humanitarian purpose, another portion for some kind of project financing, and the remainder to the investor. The defendants represented to the undercover agents that the agents’ offshore bank account would be managed by a Swiss banker who was already managing billions of dollars for the defendants. In the scheme: Ferry acted as an underwriter and member of the compliance team; Martin acted as a banking expert; Clinton acted as a troubleshooter during the compliance phase and transfer of funds to the Swiss banker; Lee acted as the contact with the Swiss banker; and Leiske acted as the trader. Chelak is charged with having acted as a compliance officer.

On April 13, 2009, Lee pleaded guilty to wire fraud and conspiracy to commit mail and wire fraud. On Jan. 11, 2010, he was sentenced to 24 months in prison.

Leiske’s case was transferred to the District of Oregon, where he pleaded guilty to all counts on Jan. 24, 2012. He is scheduled to be sentenced on Sept. 19, 2012.

Nolte was acquitted today of all charges by a jury in the Central District of California. In August 2010, charges against Pundt were dismissed by the government.

Chelak remains a fugitive.

This continuing investigation is being conducted by the FBI. This case is being prosecuted by Senior Trial Attorney David Bybee and Trial Attorney Fred Medick of the Justice Department Criminal Division’s Fraud Section.