Too good to be true? When investors are promised a return in the quadruple digits, one might assume that warning flags would immediately be on this rise. But apparently, the Securities and Exchange Commission (SEC) has found that two San Francisco-area individuals were offering extremely high returns and that investors believed in them.
The two were charged with securities fraud in connection with a scheme that involved offers of as much as 6,300 percent in returns. But actually, the investors' funds were used for such things as luxury cars and home improvements. Two individuals and two companies that were controlled by one of the defendants, raised close to $8 million which they used for purposes other than investments. One of the companies was represented as trading in gold and diamonds. The other company was represented as trading in collateralized mortgage obligations or CMOs. Instead of investing these funds, the money was diverted for personal use.
In 2007 and 2008, the SEC claims that one of the defendants represented himself as a very successful real estate investor, among other things. His targeted investors were assured that they would have little risk with great reward. He raised $4.5 million and proceeded to spend it. When he was unable to pay investors, he issued false statements to them that their money was hard at work and that the investments were sound and had not lost value.
Teaming up with the other unregistered defendant in 2008, they were able to raise another $3.2 million with the promise that their investors would make wildly high returns in CMOs and other financial instruments. They misrepresented their investor base to other investors to promote their efforts. Again, investor funds were used to purchase cars, jewelry and other luxuries as well as home improvements. The second defendant was paid cash for his "efforts."
The complaint alleges violations of, among others, the antifraud and registration provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.c. § 78j(b)] and Rule l0b-5.
Please contact the experienced securities lawyers at New York's Gusrae Kaplan Nusbaum PLLC, PLLC, for more information about our law practice and how we can support your firm's compliance and provide legal counsel in regulatory and enforcement proceedings.
