The Securities and Exchange Commission has charged a Chicago investment fund manager for conducting an $11 million Ponzi scheme to fund several personal ventures.
In addition, an administrative law judge ruled in favor of the SEC, finding that a Florida investment advisory firm and its owner made false and misleading claims in its advertising.
The Commisson also charged the former CFO of a Dallas company that dealt in expensive consignment goods, and won an emergency freeze order against an Illinois-based transfer agent to halt misappropriation of funds.
Chicago Fund Manager Charged With Bilking Clients to Fund Tavern, Kids’ Boutiques
Neal Goyal, a Chicago-based investment fund manager, and two investment advisors that he owned and controlled — Blue Horizon Asset Management and Caldera Advisors — were charged by the SEC with fraud for stealing money he raised from investors to pay personal and business expenses; in addition, the agency obtained an asset freeze.
Goyal, who told investors that the four private funds he managed would invest in securities following a long-short trading strategy, raised more than $11.4 million in the last several years for investments in the funds that he managed and controlled. His investment strategy lost money from the beginning, but he hid that fact from investors by making Ponzi payments to older investors with newer investors’ cash and by creating phony account statements.
Meanwhile, Goyal used investors’ funds to make down payments and pay the mortgages on two homes he purchased. He also used their money to invest in a Chicago tavern, fund two children’s clothing boutiques that his wife operates in Chicago, and purchase artwork and lavish furniture.
The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest and a permanent injunction against Goyal, Blue Horizon Asset Management and Caldera Advisors. The agency named another Goyal-controlled entity, Caldera Investment Group, as a relief defendant for the purpose of recovering any investor funds it received.
Judge Rebecca Pallmeyer has issued a permanent injunction and asset freeze against Goyal and his firms, who consented to the order without admitting or denying the SEC’s allegations. Monetary remedies will be decided at a later date.
In a parallel action, the U.S. Attorney’s Office for the Northern District of Illinois has also announced criminal charges against Goyal.
Judge Fines, Bars Investment Manager for False Advertising
The SEC won in a proceeding against Florida-based ZPR Investment Management and its owner Max Zavanelli, when an administrative law judge found that ZPR and Zavanelli were making false and misleading advertisements in several financial magazines and monthly newsletters to clients and prospective clients.
In April 2013, the SEC’s enforcement division issued a cease-and-desist order that said ZPR and Zavanelli falsely represented that the firm’s advertisements and other reported information complied with global investment performance standards (GIPS), a voluntary method of presenting returns commonly used by investment advisors.
According to the agency, between October and December 2008, Zavanelli sent out ads for ZPR to prospective clients that left out information indicating that the firm was underperforming its benchmark index. Instead the ads claimed that the firm was not only outperforming the benchmark, but also was in compliance with GIPS standards for its performance results.
ZPR also claimed in advertisements that its performance results had been verified by a GIPS verification firm; that also was not true. In addition, magazine advertisements in February and May 2011 also claimed GIPS verification.
Noted in the order, and in the judge’s decision, was the fact that in 1987, Zavanelli settled allegations, without admitting or denying them, that he and Zavanelli Portfolio Research were found to have made claims about performance returns and also about his educational background; at the time he had been censured and prohibited from soliciting new clients for 180 days.
Cameron Elliot, administrative law judge, ordered ZPRIM to pay $250,000 and Zavanelli to pay $660,000 and permanently barred Zavanelli from the securities industry.
Former CFO of Dallas Collectibles Company Fined for Accounting Fraud
I. John Benson, former chief financial officer of Dallas-based DGSE Companies Inc., was charged by the SEC with accounting fraud after he manipulated the company’s balance sheets.