Fraud Charges and Emergency Asset Freeze Filed Against a Group of California-Based Companies

As announced by the United States Securities and Exchange Commission:

The SEC announced fraud charges and an emergency asset freeze against a group of Pasadena, Calif.-based companies at the center of an ongoing real estate investment scheme.


The SEC alleges that Yin Nan (Michael) Wang and Wendy Ko have raised more than $150 million from approximately 2,000 investors by selling promissory notes issued through Velocity Investment Group, which manages a series of investment funds entitled the Bio Profit Series.  Each of the Bio Profit Series funds purports to be primarily in the business of making real estate-related loans in California, but in reality Wang and Ko have used money received from newer investors to make the promised quarterly interest payments to earlier investors in Ponzi-like fashion.


“The SEC sought emergency action to prevent the further dissipation of investor assets through an expected set of upcoming Ponzi-like payments,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Wang falsified financial records and used another company to create the illusion of legitimate economic activity.”


According to the SEC’s complaint unsealed today in U.S. District Court for the Central District of California, Wang and Velocity Investment Group have been raising money since at least 2005.  Wang is the sole owner of Velocity Investment Group, and the Bio Profits Series fund accounts are controlled by Wang and Ko, who transferred some investor funds to make quarterly interest payments to other investors. The SEC’s complaint says Wang has admitted that Velocity was using new investor money to pay earlier investors.


The SEC alleges that Wang directed one of the Bio Profit Series funds to provide its outside accountant with inaccurate financial information that materially overstated its mortgage loans receivable and mortgage income figures.  The more than $9.8 million of mortgage loan income shown in those financial statements included accrued interest that Wang knew that the fund would never actually receive. Wang told Velocity’s accounting manager that investors would flee if they were told the true numbers, and it would be difficult for him to raise money.


The SEC further alleges that Wang and Ko used transactions between the Bio Profit Series funds and another company charged in the complaint – Rockwell Realty Management – with the apparent purpose of concealing the fraud.  These transactions appear to have had no purpose other than to obfuscate the amount of transfers among the various funds.


The SEC’s complaint charges Wang and his companies as well as Ko 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.  The Honorable John A. Kronstadt of the U.S. District Court for the Central District of California granted the SEC’s request for a temporary asset freeze against Velocity, Bio Profit Series I, Bio Profit Series II, Bio Profit Series III, Bio Profit Series V, and Rockwell Realty Management.  Judge Kronstadt’s order prohibits the destruction of documents, requires the defendants to provide accountings, and allows expedited discovery.  A court hearing has been scheduled for December 9 on the SEC’s motion for a preliminary injunction.

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Three SEC-Registered Investment Advisory Firms Charged for Violating the Custody Rule

As released by the Securities and Exchange Commission:

Three SEC-registered investment advisory firms were charged for violating the “custody rule” that requires them to meet certain standards when maintaining custody of their clients’ funds or securities.


The majority of investment advisers do not maintain custody of client assets, which are instead held by qualified third-party custodians like a bank or broker-dealer.  Investment advisers must comply with the custody rule if they have legal ownership or access to client assets or an arrangement permitting them to withdraw client assets.  The Commission amended the custody rule in 2010 to strengthen investor protections by requiring all advisers with custody to undergo an annual “surprise exam” to verify the existence of client assets.  Advisers also must have a reasonable basis to believe that a qualified custodian is sending account statements to fund investors at least quarterly.  Advisers with custody of hedge fund or other private fund assets may alternatively comply with the custody rule through fund audits by a PCAOB-registered auditor, after which financial statements must be delivered to investors.


SEC investigations following referrals by agency examiners found that New York-based Further Lane Asset Management, Massachusetts-based GW & Wade, and Minneapolis-based Knelman Asset Management Group failed to maintain client assets with a qualified custodian or engage an independent public accountant to conduct surprise exams.  The firms also committed other violations of the federal securities laws.  Each firm has agreed to settle the SEC’s charges.


“The heart of the relationship between advisers and their customers is the safety of client assets.  Surprise exams or procedures associated with audited financial statements provide additional safeguards against assets being stolen or misused,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement.  “These firms failed to comply with their custody rule obligations, and other firms who hold client assets should take notice that we will vigorously enforce such requirements.”


The SEC issued orders instituting settled administrative proceedings against the three firms for deficiencies related to the custody rule – Rule 206(4)-2 under Section 206(4) of the Investment Advisers Act of 1940.


According to the SEC’s order against Further Lane Asset Management (FLAM) and its CEO Jose Miguel Araiz, despite maintaining custody of assets of hedge funds managed by FLAM and affiliated adviser Osprey Group Inc. (OGI), Araiz and FLAM failed to arrange an annual surprise examination to verify the funds’ assets.  The funds’ investors also did not receive quarterly account statements from a qualified custodian of the funds as required by the custody rule.  FLAM and Araiz additionally engaged in fraud related to a fund-of-funds under their control.  They caused the fund to acquire a promissory note from another entity that Araiz owned without informing investors in writing that the fund might acquire related party promissory notes or otherwise materially deviate from its fund-of-funds investment strategy.  The order details other securities law violations, including FLAM and OGI engaging in securities transactions with advisory clients on a principal basis without providing prior written disclosure to clients or obtaining their consent.  In consenting to a censure and cease-and-desist order, Araiz, FLAM and OGI agreed to pay disgorgement and prejudgment interest totaling $347,122.  Araiz additionally agreed to pay a $150,000 penalty and be suspended from the industry for one year.  FLAM consented to comply with certain compliance-based undertakings.


According to the SEC’s order against GW & Wade, the firm was subject to the custody rule in part due to its practice of using pre-signed letters of authorization and then transferring client funds without always obtaining contemporaneous client signatures.  The firm did not have proper safeguards as a custodian of client funds, and failed to identify itself as a custodian to its independent auditors or in public disclosures.  This practice exposed clients to potential harm and ultimately contributed to a third-party fraud in one client account in June 2012, when someone hacked into the client’s e-mail account and posed as the client.  The imposter requested that GW & Wade wire the client’s funds to a foreign bank, and the scheme was not discovered until three separate wires totaling $290,000 had been sent to the foreign bank.  The firm reimbursed the client.  GW & Wade additionally made inaccurate Form ADV disclosures about the amount of client assets in custody and its custody arrangements.  In consenting to a censure and cease-and-desist order, GW & Wade agreed to pay a $250,000 penalty.


According to the SEC’s order against Knelman Asset Management Group (KAMG) and its CEO and chief compliance officer Irving P. Knelman, KAMG had custody of the assets of a fund of private equity funds named Rancho Partners I.  However, Rancho’s funds were not subject to annual surprise examinations and Rancho members did not receive quarterly account statements from a qualified custodian.  Alternatively, Rancho’s financial statements were not audited or distributed to Rancho members.  The order details other violations of the securities laws, including improper discretionary cash distributions to Rancho members, failure to adopt and implement controls designed to safeguard client assets, and failure to conduct annual compliance reviews.  In consenting to a censure and cease-and-desist order, KAMG agreed to pay a $60,000 penalty.  Knelman agreed to pay a $75,000 penalty and be barred from acting as a chief compliance officer for at least three years.  KAMG and Knelman also consented to compliance training and other compliance-based undertakings.


The SEC’s investigation of Further Lane Asset Management was conducted by Asset Management Unit members Mark D. Salzberg, Robert Guzman, Igor Rozenblit, and Valerie A. Szczepanik as well as Daphna A. Waxman and Roseann Daniello in the New York Regional Office.  The preceding examination was conducted by Raymond Slezak, Michael O’Donnell, Charles Hooper, and Dave Miller of the New York office.


The SEC’s investigation of GW & Wade was conducted by Asset Management Unit members Mayeti Gametchu and Kevin Kelcourse in the Boston Regional Office.  The preceding SEC examination was conducted by Raymond Tan, Matthew Keating, John Clark, and Melissa Clough of the Boston office.

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Michigan-Based Medical Technology Company Stryker Corp. Charged with FCPA Violations

As released by the Securities and Exchange Commission:

Michigan-based medical technology company was charged with violating the Foreign Corrupt Practices Act (FCPA) when subsidiaries in five different countries bribed doctors, health care professionals, and other government-employed officials in order to obtain or retain business.

An SEC investigation found that Stryker Corporation’s subsidiaries in Argentina, Greece, Mexico, Poland, and Romania made illicit payments totaling approximately $2.2 million that were incorrectly described as legitimate expenses in the company’s books and records.  Descriptions varied from a charitable donation to consulting and service contracts, travel expenses, and commissions.  Stryker made approximately $7.5 million in illicit profits as a result of the improper payments.


Stryker has agreed to pay more than $13.2 million to settle the SEC’s charges.


“Stryker’s misconduct involved hundreds of improper payments over a number of years during which the company’s internal controls were fatally flawed,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.  “Companies that allow corruption to occur by failing to implement robust compliance programs will not be allowed to profit from their misconduct.”


The SEC’s order instituting settled administrative proceedings details improper payments by employees of Stryker’s subsidiaries as far back as 2003.  They used third parties to make the payments in order to win or keep lucrative contracts for the sale of Stryker’s medical technology products.  For example, in January 2006, Stryker’s subsidiary in Mexico directed a law firm to pay approximately $46,000 to a Mexican government employee in order to secure the winning bid on a contract.  The result was $1.1 million in profits for Stryker.  The subsidiary reimbursed the Mexico-based law firm for the bribe and booked the payment as a legitimate legal expense.  However, no legal services were actually provided and the law firm simply acted as a funnel to pay the bribe.


According to the SEC’s order, Stryker’s subsidiary in Greece made a purported “donation” of nearly $200,000 in 2007 to a public university in Greece to fund a laboratory that was a pet project of a public hospital doctor.  In exchange for the payment, the doctor agreed to provide business to Stryker.


The SEC’s investigation also found that Stryker’s subsidiaries bribed foreign officials by paying their expenses for trips that lacked any legitimate business purpose.  For example, in exchange for the promise of future business from the director of a public hospital in Poland, Stryker paid travel costs for the director and her husband in May 2004.  This included a six-night stay at a New York City hotel, attendance at two Broadway shows, and a five-day trip to Aruba.


The SEC’s order requires Stryker to pay disgorgement of $7,502,635, prejudgment interest of $2,280,888, and a penalty of $3.5 million.  Without admitting or denying the allegations, Stryker agreed to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

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Pyramid Scheme Halted Targeting Asian-American Community

As related by the Securities and Exchange Commission

The SEC announced charges and asset freezes against the operators and promoters of a worldwide pyramid scheme that falsely promises exponential, risk-free returns to investors in a venture that purportedly sells Internet-based children’s educational courses.

The SEC alleges that five entities based in Hong Kong, Canada, and the British Virgin Islands that collectively operate under business names “CKB” and “CKB168” are at the center of the scheme.  Through the efforts of three CKB executives who live overseas and several promoters living in the U.S., the scheme has ensnared at least 400 investors in New York, California, and other areas with large Asian-American communities.  These promoters have raised more than $20 million from U.S. investors, and millions of dollars more from investors in Canada, Taiwan, Hong Kong, and other countries in Asia.

According to the SEC’s complaint unsealed late yesterday in U.S. District Court for the Eastern District of New York, the scheme’s promotional efforts seek to exploit close connections among members of the Asian-American community.  The scheme’s operators and promoters use Internet videos, promotional materials, and seminars to create the appearance of a legitimate enterprise.  But in reality, CKB has little or no real-world retail consumer sales to generate the extraordinary returns promised to investors.  In fact, CKB has no apparent source of revenue other than money received from new investors.  Bank records show that the bulk of the money raised has been paid out to accounts controlled by CKB executives and as commissions to promoters of the pyramid scheme.

The court has granted the SEC’s request for an asset freeze against the CKB entities and the operators and promoters charged in the SEC’s complaint.

“CKB’s operators and promoters profited by abusing relationships of trust within the Asian-American community and promising investors they can earn more money by recruiting other investors instead of selling actual products,” said Antonia Chion, an associate director in the SEC’s Division of Enforcement.  “What CKB really sells is the false promise of easy wealth.”

The SEC issued an investor alert today warning investors about the dangers of potential investment scams involving pyramid schemes posing as multi-level marketing programs.

The SEC’s complaint charges three CKB executives:

  • Rayla Melchor Santos is a Philippines national who is featured on the CKB website as its founder.  Nicknamed “Teacher Sam,” Santos has traveled to New York and other areas of the U.S. to participate in meetings and seminars to promote CKB.
  • Hung Wai (“Howard”) Shern is a Canadian citizen and resident of Hong Kong who is featured on the CKB website as the director of CKB168 International Marketing.  Shern is one of the signatories to bank accounts used to receive and transfer funds from CKB investors, and has traveled to New York and other areas of the U.S. to participate in meetings and seminars to promote CKB.
  • Rui Ling (“Florence”) Leung is a Hong Kong national who is described on the CKB website as its chief financial officer.  Leung is one of the signatories to bank accounts used to receive and transfer funds from CKB investors, and approximately $4.6 million has been transferred from CKB bank accounts to bank accounts in her name and the names of entities she controls. Leung portrays herself as a professional investment adviser who will assist CKB in its supposed future public offering.

The SEC’s complaint charges eight CKB promoters in the U.S.:

  • Daliang (David) Guo is a China native and a resident of Coram, N.Y., who was among CKB’s first U.S. promoters.  He currently sits atop an investment pyramid, and claims in a testimonial on the CKB website to have earned more than $1 million within eight months.
  • Yao Lin is a resident of Fresh Meadows, N.Y., who was among CKB’s first U.S. promoters.  He currently sits atop an investment pyramid, and claims in a CKB website testimonial to have earned more than $300,000.  The SEC’s complaint alleges that bank and credit card accounts he controls have received approximately $450,000 from CKB investors.
  • Chih Hsuan (“Kiki”) Lin is a Taiwanese native and resident of Las Vegas who claims in a CKB website testimonial to have earned “one million USD” in her first two months of investing.  She operates a website through which “CKB members” can log in to a password-protected area.  She is within David Guo’s pyramid.  The SEC’s complaint alleges that bank accounts she controls have received approximately $1.8 million from CKB investors.
  • Wen Chen Hwang (“Wendy Lee”) is a Taiwanese native and resident of Rowland Heights, Calif., who claims in a CKB website testimonial to have made $53,000 within four months.  She is within Yao Lin’s pyramid.  The SEC’s complaint alleges that bank accounts she controls have received approximately $2.2 million from CKB investors.
  • Toni Tong Chen is a resident of Hacienda Heights, Calif., and a certified public accountant who was formerly associated with a registered broker-dealer and held securities licenses.  She and her husband claim to have earned six-digit commissions and in excess of a 100 percent return on their investment.  They are connected to Wendy Lee and have made presentations at her weekly seminars in Los Angeles.
  • Cheongwha (“Heywood”) Chang is a Chinese native and the husband of Toni Tong Chen.  He was formerly associated with a registered broker-dealer and held securities licenses.  The SEC’s complaint alleges that bank accounts that he and his wife control have received approximately $2.1 million from CKB investors.
  • Joan Congyi Ma is a resident of Arcadia, Calif., who was formerly associated with a broker-dealer and held securities licenses.  She is connected to Wendy Lee and has helped her organize seminars and other events in Los Angeles.  In her CKB website testimonial, she references the day she met Yao Lin as her “lucky day.”  The SEC’s complaint alleges that bank accounts she controls have received approximately $200,000 from CKB investors.
  • Heidi Mao Liu is a resident of Diamond Bar, Calif., who was formerly associated with a broker-dealer and held securities licenses.  She is connected to Wendy Lee and has provided testimonials at her seminars in Los Angeles.  She also operates her own website that promotes the CKB scheme. The SEC’s complaint alleges that bank accounts she controls have received approximately $1.2 million from CKB investors.

According to the SEC’s complaint, after David Guo and Yao Lin began recruiting investors in the New York area in mid-2011, the CKB scheme quickly expanded to California and other areas with large Asian-American communities.  David Guo, Yao Lin, Rayla Santos, and Howard Shern appear in presentations recorded in San Francisco and Los Angeles, where they recruited energetic and highly visible promoters who have organized seminars and meetings nationwide.  They maintained a robust Internet presence, recorded and posted numerous promotional videos, and organized and executed the transfer of CKB investor funds.

The SEC alleges that CKB represents that potential purchasers of its educational products must invest in CKB to get one of its courses.  In addition to the course, they receive “Profit Reward Points” upon their initial investment and are told they can earn money once those points increase in value or pay dividends.  They are promised even larger returns by converting their points into shares of CKB stock when the company conducts a promised IPO on the Hong Kong Stock Exchange in 2014.

According to the SEC’s complaint, however, Profit Rewards Points are not the only incentive for investors, who are told that they will be able to make even more money through commissions and bonuses by recruiting new investors.  The scheme’s ultimate goal is to turn investors into recruiters.  In fact, active recruitment is the only real way for investors to make actual money in the scheme.  For instance, Kiki Lin exemplified the pitch in a videotaped recording posted to the Internet, telling potential investors that in the “pyramid triangle system, we spread it from one to ten, and ten to hundred, and hundred to thousand, thousand to ten thousand.”  Kiki Lin later added, “And for those who really want to make money, who are really hard working, in a short time you would all be like John,” who she claimed “made money to buy five houses in Las Vegas.”

The complaint alleges that the investments in CKB constitute securities, and the securities offerings were not registered with the SEC as required under the federal securities laws.  The SEC’s complaint charges the CKB entities, three executives, and eight promoters with violations of the antifraud and securities registrations provisions of the federal securities laws.  Nine of the individuals are charged with violating the broker-dealer registration provisions.  The SEC seeks disgorgement of ill-gotten gains, financial penalties, permanent injunctions, and other relief.

The Honorable Roslynn Mauskopf granted the SEC’s request for a temporary restraining order, asset freeze, and other emergency relief against the 16 defendants as well as seven entities controlled by the U.S. promoters that are named as relief defendants in the SEC’s complaint for the purpose of recovering ill-gotten proceeds from the alleged fraud.

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Minnesota Hedge Fund Manager Gets 17 Years in Connection with Petters Ponzi Scheme

As released by HedgeCo.Net

Hedge fund manager James Nathan Fry of Orono, Minnesota was sentenced to 17½ years in prison on five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the SEC.

The StarTribune reports: “Fry’s investors lost $120 million when the $3.65 billion Ponzi scheme engineered by Petters and associates collapsed in September 2008. Before that, however, he collected $40 million in fees and commissions from the transactions he conducted with the Petters operation.”

Fry’s company, Arrowhead Capital Management was one of the hedge funds that Thomas Petters used to perpetuate the third-largest hedge fund fraud case in U.S. history. Petters used these funds to finance his big box and other acquisitions. He then fabricated retail orders from those acquisitions and used them as collateral to borrow more money through the funds.

“He could have told investors the truth, but he didn’t because he was worried people would pull their money out,”  Assistant U.S. Attorney Tim Rank said before the sentencing yesterday. “So he chose to lie.”

Thomas Petters was convicted of fraud and imprisoned at the United States Penitentiary, Leavenworth. He was the former CEO and chairman of Petters Group Worldwide. He resigned his position as CEO on September 29, 2008, amid mounting criminal investigations. He later was convicted for turning Petters Group Worldwide into a $3.65 billion Ponzi scheme and received a 50 year federal sentence.

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Default Judgment Entered Against Peter Madoff, Former Chief Compliance Officer

As reported by the Securities and Exchange Commission:

The Commission announced that the United States District Court for the Southern District of New York, entered a default judgment against Peter Madoff, former chief compliance officer and senior managing director at Bernard L. Madoff Investment Securities LLC (BMIS) from 1969 to 2008.

The Commission’s complaint alleged that Peter Madoff created stacks of compliance documents setting out supposedly robust policies and procedures over BMIS’s investment advisory operations. However, no policies and procedures were ever implemented, and none of the reviews were actually performed even though Peter Madoff represented that he personally completed the reviews.

The SEC’s complaint also alleged that in addition to creating false compliance materials, Peter Madoff created false broker-dealer and investment advisor registration applications filed by BMIS. He also failed to implement and review required policies and procedures, and falsified the firm’s books and records. Peter Madoff was richly rewarded for his misconduct, pocketing tens of millions of dollars through salary and bonuses, fake trades, sham loans, and direct, undocumented transfers of investor funds to himself from the bank account that BMIS used to perpetrate the Ponzi scheme.

Peter Madoff failed to answer, move or otherwise respond to the Commission’s complaint. The default judgment permanently enjoins Peter Madoff from violating or aiding and abetting violations of Sections 10(b), 15(b)(1), 15(c) and 17(a) of the Securities Exchange Act of 1934 and Rules 10b-3, 10b-5, 15b3-1 and 17a-3 thereunder, and Sections 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act of 1940 and Rules 204-2 and 206(4)-7 thereunder. The default judgment orders no monetary relief in light of Peter Madoff’s criminal conviction and the $143 billion in restitution ordered in the parallel criminal proceeding United States v. Peter Madoff, 10 Crim. 228 (S.D.N.Y.) (LTS).

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Judgment Entered Against Boiler Room Operator in Massachusetts

As releaed by the Securities and Exchange Commission:

Former Envit Capital Boiler-Room Salesman Settles SEC Fraud Charges

The Securities and Exchange Commission announced today that on October 8, 2013, the federal court in Massachusetts entered a judgment against Jonathan Fraiman in a previously-filed case, arising from his alleged participation in a boiler room operated by Edward M. Laborio. Fraiman consented to the entry of the judgment.

On August 10, 2012, the Commission charged Fraiman, Laborio, Matthew K. Lazar, and seven entities owned and controlled by Laborio, including a non-existent hedge fund, (collectively, the “Envit Companies”) with raising up to $5.7 million from more than 150 investors through the fraudulent sale of five unregistered offerings. The Complaint alleged that Laborio hired Fraiman in January 2008 to market Envit Capital Multi Strategy Mixed Investment Fund I LP, a purported hedge fund that in reality never conducted any business, and Laborio also named Fraiman as the Director and Chief Compliance Officer of Envit Capital Private Wealth Management, LLC, the purported investment adviser arm of the Envit Companies. Among other conduct, the Complaint alleged that Fraiman raised hundreds of thousands of dollars for Laborio by misrepresenting the historical returns and financial health of the Envit Companies, including that: (i) the non-existent hedge fund returned 42.9% in 2006 and 43.7% in 2007; (ii) shares in one of the unregistered offerings pay a 5% to 10% dividend; and (iii) the company had no debt and was cash flow positive.

On October 8, 2013, the Court entered a final judgment against Fraiman: (i) permanently enjoining him from violating Section 17(a)(2) of the Securities Act of 1933 (Securities Act); Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5(b) thereunder; and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder; (ii) barring him from participating in any offering of penny stock; (iii) finding him liable for disgorgement of $180,961.42 and prejudgment interest of $24,537.22, for a total of $205,498.66; and (iv) waiving payment of the disgorgement and prejudgment interest, and not imposing a civil penalty, based upon the representations in Fraiman’s sworn statement of financial condition. Fraiman agreed to settle the Commission’s charges without admitting or denying the allegations in the Complaint.

To settle the Commission’s charges in related administrative proceedings that the Commission will separately institute, Fraiman has consented to be barred from any future association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to reapply after ten years.

The Commission’s civil injunctive action against Laborio, Lazar, and the Envit Companies, SEC v Laborio et al., 1:12-cv-11489-MBB (D. Mass., Aug. 10, 2012), is still pending.

In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation, the State of Florida Office of Financial Regulation, and the Financial Industry Regulatory Authority (FINRA).

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South Florida-Based Woman Charged in a Ponzi Scheme

As released by HedgeCo.Net

New York (HedgeCo.Net) – The SEC charged a woman living in South Florida with defrauding investors in a Ponzi scheme and affinity fraud that targeted the local Colombian-American community and involved purported investments in immigration bail bonds.

The SEC alleges that Jenny E. Coplan told investors that her company Immigration General Services operated through an investment broker that would invest the funds she raised in immigration bail bonds and turn a profit.  Coplan promised interest payments ranging from 60 to 108 percent annually.  She also assured investors that their money was safe because it was insured by the Federal Deposit Insurance Corporation (FDIC).  However, Coplan never placed investor funds with any investment broker, and their money was never FDIC insured.  Instead, she paid supposed profits to earlier investors using funds from newer investors in classic Ponzi fashion, and she stole approximately $878,000 of investor money for her own personal use.

“Coplan deliberately misled investors into believing their investments were safe and secure when in reality she was lining her own pockets,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Her predatory scheme exploited the trust and friendship of members of her own community by using empty promises to convince them to trust her with their hard-earned savings.”

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

According to the SEC’s complaint filed in federal court in Miami, Coplan solicited investors through personal conversations over the phone and in person, and many of her targets were Colombian-Americans and Colombians living in Florida.  She raised approximately $4 million from more than 90 investors in Florida, California, Georgia, Texas, Canada, and Colombia.

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Texas-Based Scheme Targeting Foreign Investors is Halted from Seeking U.S. Residency Through EB-5 Visa Program

As published by the U.S. Securities and Exchange Commission

The Securities and Exchange Commission announced fraud charges against a husband and wife in Texas for stealing funds from foreign investors under the guise of an investment opportunity to create U.S. jobs and a path to U.S. residency.

The SEC alleges that Marco and Bebe Ramirez and three companies they own have fraudulently raised at least $5 million from investors by falsely promising that their money would be invested as part of the EB-5 Immigrant Investor Pilot Program.  Through the program, foreign investors can earn conditional visas and eventually green cards by making investments in U.S. economic development projects that will create or preserve a minimum number of jobs for U.S. workers.  Instead of investing the money as promised, the Ramirezes routinely diverted investor funds to other undisclosed businesses and for their personal use.  In at least one instance, they used new investor funds to make Ponzi-like payments to an existing investor.


According to the SEC’s complaint unsealed today in U.S. District Court for the Southern District of Texas, the Ramirezes initially targeted investors in Mexico, but more recently have solicited investors in Egypt and Nigeria.  The court has granted the SEC’s request to freeze the assets and accounts of the Ramirezes and their three companies: USA Now LLC, USA Now Energy Capital Group LP, and Now Co. Loan Services.  This effectively halts their ability to raise further money from investors or spend any remaining funds in the scheme.


“Through their investment scheme, the Ramirezes abused a program intended to attract foreign capital to create U.S. jobs,” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office.  “The Ramirezes misappropriated investor funds for their own purposes without any regard for the harm they caused investors who were seeking an avenue to U.S. residency.”


The SEC and U.S. Citizenship and Immigration Services (USCIS) today issued a joint investor alert that provides additional information about the EB-5 program and cautions investors about fraudulent EB-5 schemes.  USCIS offered substantial assistance in the SEC’s investigation of the Ramirezes.  The EB-5 program is administered by USCIS and enables foreign investors to make their investments either directly in a business or through EB-5 “regional centers” that are private entities organized to promote economic development in specific geographic areas and industries.


According to the SEC’ s complaint, beginning in 2010, the Ramirezes sought approval from USCIS to register USA Now as an EB-5 regional center that would accept and direct investments from foreign investors into investment opportunities that would purportedly satisfy the EB-5 visa requirements.  But even before USCIS decided, the Ramirezes and other USA Now employees already had started soliciting investors with false promises about how their money would be invested.


The SEC alleges that the Ramirezes told investors that USA Now would hold their investments in escrow until they received USCIS approval.  And once the funds were released from escrow, they would be used for specific business purposes.  However, the Ramriezes failed to hold the funds in escrow as required, and instead routinely diverted the funds for other uses not described in offering materials, often on the same day the funds were received.  Among their misappropriations, the Ramirezes appear to have opened a Cajun-themed restaurant with investor funds and settled an unrelated lawsuit.  Meanwhile, none of the at least 10 investors identified by the SEC as victims of the scheme have received visas from USCIS, and none of their funds seem to remain in escrow.


“Even though investors provided the Ramirezes with at least $5 million, none of them have ever received conditional visas let alone green cards,” said David Peavler, Associate Director of the SEC’s Fort Worth Regional Office.  “Instead, the Ramirezes opened a restaurant and purchased other assets for themselves and their employees.”


The SEC’s complaint alleges that the Ramirezes and their companies violated and aided and abetted violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.  The complaint seeks various relief including preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

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California-Based Investment Firm Charged With Fraud

As related by the Securities and Exchange Commission:

The Securities and Exchange Commission today charged the former president of a purported private equity real estate firm based in San Bernardino, Calif., with defrauding nearly 500 investors who purchased promissory notes under the false premise that they were secured by specific properties or other collateral.


The SEC alleges that Larry Polhill used his company American Pacific Financial Corporation (APFC) to buy and sell real estate and distressed assets, and he offered investors the opportunity to invest in the company through unregistered notes that would yield them interest payments of 5 to 17 percent per year.  However, the collateral that Polhill and APFC claimed made the investments secure was often non-existent or otherwise impaired.  The properties underlying the investments were sometimes even sold without notice to investors.  When APFC eventually filed for bankruptcy, it named the investors as unsecured creditors who were owed nearly $160 million.  None of Polhill’s investment offerings were registered with the SEC.


“Polhill falsely presented investment opportunities that were safe and reliable based on collateral that didn’t always exist, and his fraudulent misrepresentations left investors with nothing to show for their investments when APFC declared bankruptcy,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.


Polhill agreed to settle the SEC’s charges and be barred from acting as the officer or director of any public company.  The settlement is subject to the approval of the U.S. District Court for the Central District of California, which would decide monetary sanctions at a later date.


According to the SEC’s complaint, in addition to promissory notes, investors also could invest in APFC-sponsored funds that pooled investor money to make loans to APFC.  The company made regularly scheduled interest payments to investors in the notes and the funds from the mid-1980s to 2007.  As a result, its investor base continually grew and the company began making larger and larger investments in distressed assets by buying numerous companies out of bankruptcy.  While a few of APFC’s investments were successful, the vast majority failed unbeknownst to investors.  Consequently, the assets held by APFC that were securing the notes and loans held by investors decreased in value.  In early 2008, APFC ceased making its scheduled payments to most investors, but continued to issue newsletters, pay preferred investors, and engage in other activities designed to create a false sense of security about the investments in the company.


The SEC alleges that Polhill made several material misrepresentations to investors.  Specifically, he told investors that the notes were secured by collateral when no such security interest existed.  He failed to disclose that the collateral securing some investors’ notes already had been pledged to other lenders.  Polhill represented that he would notify investors if their collateral went into default when that was often not the case.  For instance, one investor’s note specifically stated it was secured by property located in Hesperia, Calif., that was owned by APFC and pledged as collateral.  However, APFC sold the collateral in 2004, and neither Polhill nor APFC informed the investor that his collateral had been sold and there was no longer any asset securing the note.

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