FRAUD VERDICT IN PONZI SCHEME CASE LEADS TO $80 MILLION IN SANCTIONS AGAINST MAN AND HIS COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Court Imposes Injunctions and Monetary Sanctions of Over $80 Million Against Marlon Quan and His Companies Based On Fraud Verdict

The United States Securities and Exchange Commission announced today that, on September 19, 2014, Judge Ann D. Montgomery, of the U.S. District Court in Minneapolis, Minnesota, issued an Opinion and Order imposing sanctions against defendants Marlon Quan, Acorn Capital Group, LLC ("Acorn"), Stewardship Investment Advisors, LLC ("SIA") and ACG II, LLC ("ACG II"). In the Opinion and Order, Judge Montgomery imposed permanent injunctions against the defendants, and imposed financial sanctions of over $80 million against Marlon Quan and the three other defendants that he controlled.

The Commission's complaint, which was filed in March 2011, alleged that Marlon Quan helped to facilitate the massive fraud of Tom Petters by funneling several hundred million dollars of investor money into the Petters Ponzi scheme. According to the SEC's 2009 complaint against Tom Petters, he sold promissory notes to feeder funds like those controlled by Quan and his firms. Petters used some of the note proceeds to pay returns to earlier investors, diverting the rest of the cash to his own purposes. Petters had promised investors that their money would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to such retailers as Wal-Mart and Costco. In reality, this "purchase order inventory financing" business was merely a Ponzi scheme -- there were no inventory transactions.

The SEC alleged that Quan and his firms (SIA and Acorn) invested hundreds of millions of hedge fund assets with Petters while pocketing tens of millions of dollars in fees. Marlon Quan and his companies falsely assured investors that their money would be protected by various safeguards such as "lock box accounts." The complaint also alleged that when Petters was unable to make payments on investments held by the funds that Quan managed, Quan and his firms concealed Petters's defaults from investors.

The Commission had previously charged Petters and Illinois-based fund manager Gregory M. Bell with fraud, and filed additional charges against Florida-based hedge fund managers Bruce F. Prévost and David W. Harrold for similarly defrauding their investors in connection with investments in the Petters Ponzi scheme. Subsequent to filing the complaint against Marlon Quan and his companies, the SEC also charged James Fry, a Minnesota-based hedge fund manager, with similar misconduct.

After a nine-day trial, on February 11, 2014, the jury returned a verdict for the Commission and against the defendants, finding Marlon Quan and his three companies liable for securities fraud. In her September 19th Opinion and Order, Judge Montgomery permanently enjoined the Marlon Quan, Acorn, SIA and ACG II from violating, or aiding and abetting violations of, Section 17(a)(2) and (3) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Judge Montgomery further ordered that Marlon Quan and the other defendants were liable, jointly and severally, for disgorgement of $80,6213,589 together with prejudgment interest.

The trial team from the Commission's Chicago Regional Office consisted of attorneys John E. Birkenheier, C.J. Kerstetter, Timothy Leiman, Michael Mueller, Senior Accountant Don Ryba, and paralegal Sarah Renardo.

SEC CHARGES RETIREMENT PLAN ADMINISTRATOR WITH DEFRAUDING INVESTORS WITH IRA ACCOUNTS

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an asset freeze against a Utah-based retirement plan administrator who defrauded investors in self-directed individual retirement accounts (IRAs), causing them to lose millions of dollars of savings.

The SEC alleges that American Pension Services Inc. (APS) and its founder, president and CEO Curtis L. DeYoung squandered more than $22 million of investor funds on high-risk investments.  DeYoung hid the losses by issuing inflated account statements, allowing him to continue collecting fees and further victimizing his customers.

“This misconduct jeopardized retirement security for thousands of APS customers,” said Karen L. Martinez, director of the SEC’s Salt Lake Regional Office.

According to the SEC’s complaint unsealed yesterday in federal court in Salt Lake City,  DeYoung’s scheme dates back to at least 2005 and targeted customers with retirement accounts holding non-traditional assets typically not available through traditional 401(k) retirement plans or other IRA custodians.  Although APS has no authority to direct customer trades, DeYoung allegedly used forged letters and signatures to invest on behalf of customers, including in promissory notes issued by a friend whose businesses never turned a profit.  DeYoung continued to recommend that APS customers invest in the notes, and he sent customer funds to the friend until at least April 2013 without disclosing to investors that the friend had defaulted on the notes in 2010 and DeYoung had forgiven the debt.

The SEC further alleges that investments in other bankrupt ventures, including an office building in Wichita, Kan., caused APS customers to lose more money.  APS concealed those losses and issued account statements that inflated the value of customer holdings, allowing APS to levy fees based on the full value of the holdings even when they were worthless.

According to the SEC’s complaint, when DeYoung was questioned by the SEC about a $22 million gap between actual holdings and those showing on account statements, he invoked his Fifth Amendment privilege against self-incrimination and refused to answer.

The Honorable Robert J. Shelby granted the SEC’s request for a temporary restraining order to freeze the assets of APS and DeYoung.  The court appointed Diane Thompson of Ballard Spahr LLP as the receiver in this case to recover investor assets.

TWO FLORIDA MEN CHARGED WITH RUNNING $173 MILLION PONZI-LIKE SCHEME IN FORT LAUDERDALE AREA

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 31, 2012
On May 22, 2012, The Securities and Exchange Commission charged two individuals who provided the biggest influx of investor funds into one of the largest-ever Ponzi schemes in South Florida. The SEC alleges that George Levin and Frank Preve, who live in the Fort Lauderdale area, raised more than $157 million from 173 investors in less than two years by issuing promissory notes from Levin’s company and interests in a private investment fund they operated. They used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein through his prominent law firm Rothstein Rosenfeldt and Adler PA. However, the settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein’s Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

According to the SEC’s complaint filed in federal court in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin’s company – Banyon 1030-32 LLC. In 2009, seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP that invested exclusively in Rothstein’s settlements. Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts obtained from Rothstein exceeded the rate of return promised to investors.

The SEC alleges that the offering materials for the promissory notes and the private fund contained material misrepresentations and omissions. They misrepresented to investors that prior to any settlement purchase, Banyon 1030-32 would obtain certain documentation about the settlements to ensure the safety of the investments. Levin and Preve, however, knew or were reckless in not knowing that Banyon 1030-32 often purchased settlements from Rothstein without obtaining any documentation whatsoever.

Furthermore, Banyon Income Fund’s private placement memorandum misrepresented that the fund would be a continuation of a successful business strategy pursued by Banyon 1030-32 during the prior two-and-a-half years. Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the prior settlements Levin and his entities had purchased. They also failed to inform investors that Levin’s ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

The SEC’s complaint charges Levin and Preve with violating Section 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The SEC is seeking disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by senior counsels D. Corey Lawson and Steven J. Meiner and staff accountant Tonya T. Tullis under the supervision of Assistant Regional Director Chad Alan Earnst. Senior trial counsels James M. Carlson and C. Ian Anderson are leading the litigation.

The SEC acknowledges the assistance of the Office of the United States Attorney for the Southern District of Florida, the Federal Bureau of Investigation, and the Internal Revenue Service.

TWO FLORIDA RESIDENTS CHARGED BY SEC IN ALLEGED MASSIVE PROMISSORY NOTE PONZI SCHEME

Photo:   American Alligator.  Credit:  U.S. Fish And Wildlife Service
FROM:  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 22, 2012 — The Securities and Exchange Commission today charged two individuals who provided the biggest influx of investor funds into one of the largest-ever Ponzi schemes in South Florida.

The SEC alleges that George Levin and Frank Preve, who live in the Fort Lauderdale area, raised more than $157 million from 173 investors in less than two years by issuing promissory notes from Levin's company and interests in a private investment fund they operated. They used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein through his prominent law firm Rothstein Rosenfeldt and Adler PA. However, the settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein's Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

The SEC alleges that Levin and Preve misrepresented to investors that they had procedural safeguards in place to protect investor money when in fact they often purchased settlements without first seeing any legal documents or doing anything to verify that the settlement proceeds were actually in Rothstein's bank accounts. Moreover, as the Ponzi scheme was collapsing and Rothstein stopped making payments on prior investments, Levin and Preve sought new investor money while falsely touting the continued success of their investment strategy. With their fate tied to Rothstein, Levin and Preve's settlement purchasing business collapsed along with the Ponzi scheme.

"Levin and Preve fueled Rothstein's Ponzi scheme with the false sense of security they gave investors," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "They promised to safeguard investors' assets, but gave Rothstein money with nothing to show for it."

According to the SEC's complaint filed in federal court in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin's company - Banyon 1030-32 LLC. In 2009, seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP that invested exclusively in Rothstein's settlements. Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts obtained from Rothstein exceeded the rate of return promised to investors.

The SEC alleges that the offering materials for the promissory notes and the private fund contained material misrepresentations and omissions. They misrepresented to investors that prior to any settlement purchase, Banyon 1030-32 would obtain certain documentation about the settlements to ensure the safety of the investments. Levin and Preve, however, knew or were reckless in not knowing that Banyon 1030-32 often purchased settlements from Rothstein without obtaining any documentation whatsoever.

Furthermore, the SEC alleges that Banyon Income Fund's private placement memorandum misrepresented that the fund would be a continuation of a successful business strategy pursued by Banyon 1030-32 during the prior two-and-a-half years. Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the prior settlements Levin and his entities had purchased. They also failed to inform investors that Levin's ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

The SEC's complaint seeks disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by senior counsels D. Corey Lawson and Steven J. Meiner and staff accountant Tonya T. Tullis under the supervision of Assistant Regional Director Chad Alan Earnst. Senior trial counsels James M. Carlson and C. Ian Anderson are leading the litigation.

The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of Florida, the Federal Bureau of Investigation, and the Internal Revenue Service.