8 Oddest Enforcement Cases of 2014

The three men pleaded not guilty in federal court to charges of mail fraud and making false statements. A fourth, salesman Robert Matias, who was not named in the SEC statement, fled.  The authorities found him in July at a relative’s house in Los Angeles, and he was arrested and charged.

5. Bond Investors Burned in Effort to Build Hollywood in the Midwest

In another movie-related case, a former mayor and city administrator of a Detroit suburb were charged by the SEC in November with defrauding bond investors who thought they were supporting the construction of a movie studio.

Then-Mayor Gary Burtka of Allen Park, Michigan, was a vocal backer of the planned movie studio, hoping to spur much-needed economic development. But by the time the bonds to fund it were issued, the plans had deteriorated into building and operating a vocational school instead. Eventually, the project collapsed entirely. Bond investors were left in the dark about these developments, the SEC said.

The SEC said that offering documents provided to investors during the city’s sale of $31 million in general obligation bonds contained false and misleading statements about the scope and viability of the movie studio project, as well as on Allen Park’s overall financial condition and ability to service the bond debt. It said the city administrator, Eric Waidelich, was in a position to control those bond issuances.

Burtka and Waidelich were barred from participating in future bond offerings and neither admitted nor denied the SEC’s charges. The regulator fined Burtka $10,000.

6. Accountant Took Loan From Casino Client Then, Naturally, Went Gambling

To avoid conflicts of interest, accountants are forbidden from doing other business with audit clients. Former Chief Risk Officer James T. Adams of accounting giant Deloitte essentially took a loan from a casino client, used the funds to gamble at the casino, and then defaulted on part of the loan, according to the SEC.

As the advisory partner on the audit of a casino gaming company by subsidiary Deloitte & Touche, Adams accepted casino markers from the firm, which allowed him to draw from a line of credit at one of the firm’s casinos, in 2009. When he was removed from the audit for unrelated reasons in 2010, he left $110,000 in debt to the casino outstanding, the SEC said.

In May, the SEC suspended Adams from auditing public companies for two years. He agreed to the suspension without admitting or denying the SEC’s findings.

7. Advisor Barred for Hiding Active Management Strategy—the Kind Based on Astrology

In May, the Securities and Exchange Commission barred an investment advisor who based his investment strategy on cycles of the moon and the gravitational attraction between the earth and the moon, but failed to disclose that fact to clients.

Gurudeo Persaud was already serving a three-year prison term for fraud when he agreed to be barred from the industry. He had run a Ponzi scheme and used client money to pay his own expenses, the SEC said.

Persaud had started his own company, White Elephant Trading Co., while still with Money Concepts Capital Corp., and used White Elephant to solicit investments of more than $1 million. Half of this went to pay his own expenses, and what he did invest was based on lunar cycles and gravitational forces rather than more conventional investment strategies. He promised returns of between 6% and 18%, and of course failed to deliver on those promises.

The SEC charged him with fraud in 2012; after he pleaded guilty in 2013, he was ordered to pay almost $1 million in restitution.

8. Broker Looted IRAs to Fund: A) Bounty Hunter Show, B) Bridal Shop, C) Soul Food Restaurant, or D) All of the Above

In December, a federal grand jury indicted a broker who used $6 million of clients’ IRA money to fund a bridal shop, a reality TV show about bounty hunters and other ventures, and to fund his lifestyle. He even gave some of their money to charity. 

Broker John Marcum of Guaranty Reserves Trust passed himself off as a successful trader and investor. In reality, he failed wildly at both, according to the SEC.

According to the regulator, which froze Marcum’s assets in 2013, the Noblesville, Indiana-based broker helped investors set up self-directed IRA accounts and then borrowed money from them, telling them he would day-trade with the money and promising steep returns with little risk.

He went on to lose about $900,000 while trading, the SEC said. He also used the accounts as collateral for a $3 million line of credit to fund ventures as diverse as a bridal shop, a bounty hunter reality TV show and a soul food restaurant run by the bounty hunters — none of which appeared to be making a profit. (He also put $1.4 million of client money directly into the ventures).

Marcum used more than $500,000 to pay for his personal expenses, and, according to the Indianapolis Star, gave some client money to a charity that provided jobs for ex-convicts.

Meanwhile, he provided clients with phony statements showing 20% returns.

The whole scheme started to collapse when Marcum did not have the funds needed to honor investor redemption requests.

When he finally admitted to three clients that he’d misappropriated their money, he tried to sell them on giving him more time. If he failed to bring in enough to pay them off, he said, he would name them as beneficiaries on life insurance policies and, after the purported two-year “suicide clause” on the policies was satisfied, would repay their funds by killing himself so that they could collect.

The grand jury indicted Marcum on charges of wire fraud, securities fraud and money laundering, according to The Star. The SEC is seeking permanent injunctions, fines and disgorgement.

(Marlene Y. Satter, Melanie Waddell, Janet Levaux and Sabrina Bachai contributed reporting.)

— Related on ThinkAdvisor:

• 12 Worst Financial Advisors in America: 2014
• Top 10 Biggest Lottery-Winning Losers