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Regulation and Compliance > Federal Regulation > SEC

SEC Enforcement: $10M Jamaican Business Ponzi Scheme Busted

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Among recent enforcement actions by the Securities and Exchange Commission were charges against a Boston resident for conducting a Ponzi scheme claiming to offer “bridge loans” to Jamaican businesses, a California businessman accused of stealing investor assets, a muni advisor and a microcap CEO.

$10 Million Ponzi Scheme Promised Bridge Loans to Jamaican Businesses

The SEC has charged former Boston resident Mark Jones, who now lives in Miami and has a second home in Jamaica, with operating a $10 million Ponzi scheme that claimed to generate profits from “bridge loans” to businesses in Jamaica.

According to the agency, in about 2007, Jones started to solicit investors, telling them their money would be pooled and used for bridge loans to Jamaican businesses waiting for funds from approved commercial bank loans. Jones claimed the bridge loans would bring investors annual interest of 15% to 20%.

He even appeared in YouTube videos touting investment opportunities in Jamaica and met with some investors in Jamaica to show local projects they had purportedly funded. His efforts raised about $10 million from at least 21 investors in six states and Washington, D.C., including three of his own relatives.

But Jones used investors’ money to pay other investors — the hallmark of a Ponzi scheme — and also used some investors’ money to pay his personal expenses. Many of Jones’s victims are retirees now in financial straits thanks to those “investments.”

The SEC obtained a court order freezing Jones’s assets, as well as an order to repatriate investor funds that were moved overseas. The agency seeks a permanent injunction, return of allegedly ill-gotten gains with interest, and penalties.

SEC Charges California Real Estate Investor With Fraud

California businessman Daniel Nase was charged with fraud by the SEC after he raised money from investors through an unregistered offering of common stock in his Bakersfield, California-based company, BIC Real Estate Development Corp., and then used that money for personal expenses.

According to the agency, Nase, who was not registered with the SEC or any state regulator to sell investments, told investors that BIC would invest in real estate and promissory notes. With money he used to purchase real estate and notes, Nase improperly titled most of the properties in his name or his wife’s name or their family trust, not BIC. He also used some investor funds to pay for clothing, vacations, student loans and other personal expenses.

Once he found out about the SEC’s investigation, Nase tried to cover up his theft by investing stolen assets back into the company to make it look as if he was increasing his equity stake in it.

Nase and BIC have been charged with violating federal antifraud laws and rules and securities registration provisions. The SEC is seeking emergency relief in the form of a temporary restraining order, asset freeze, and a preliminary injunction. It also seeks the return of allegedly ill-gotten gains, along with interest, penalties and other relief.

Municipal Advisor Fined Over Conflict of Interest

Kansas-based Central States Capital Markets, its CEO and two employees have been charged by the SEC with breaching their fiduciary duty by failing to disclose a conflict of interest to a municipal client.

According to the agency, while Central States served as a municipal advisor to a client on three municipal bond offerings in 2011, two of its employees, in consultation with the CEO, arranged for the offerings to be underwritten by a broker-dealer where all three worked as registered representatives. In the offerings, Central States collected fees from the city for the municipal advisory work and received 90% of the underwriting fees the city paid to the broker-dealer.

Central States CEO John Stepp and employees Mark Detter and David Malone did not inform the client, identified in the SEC’s order as “the city,” of their relationship to the underwriter or the financial benefit they obtained from serving in dual roles, and the SEC said that Central States, Stepp, Detter and Malone breached their duty to the city by failing to disclose the conflict of interest.

Detter and Malone were aware of the conflict; Detter emailed Malone that “we should resign” as municipal advisor to serve solely as underwriter on the offerings. Without admitting or denying the SEC’s findings, Central States, Detter, Malone and Stepp consented to sanctions. Central States agreed to settle the charges by paying $289,827.80 in disgorgement and interest and an $85,000 civil penalty. Detter agreed to settle by paying a $25,000 civil penalty and agreeing to a bar from the financial services industry for a minimum of two years. Malone agreed to a $20,000 civil penalty and a bar from the financial services industry for a one-year minimum. Stepp agreed to pay a $17,500 civil penalty and accept a six-month suspension from acting in a supervisory capacity with any broker-dealer, investment advisor or municipal advisor.

Microcap CEO Didn’t Really Have Partnership With UN: SEC

Cary Lee Peterson, chief executive officer of microcap company RVPlus Inc., was charged by the SEC for falsely claiming to have a lucrative relationship with the United Nations and billions of dollars in clean energy contracts with foreign governments.

According to the agency, Peterson made bogus claims in the company’s public filings and in statements to private investors, and he and RVPlus participated in an unlawful distribution of RVPlus’s stock. The SEC temporarily suspended trading in RVPlus securities in July 2013, citing “material deficiencies” in the company’s financial statements.

Starting in May 2012, Peterson filed periodic reports with the SEC claiming that RVPlus had a relationship with the United Nations and clean energy agreements with governmental bodies in Nigeria, Haiti, and Liberia worth $2.8 billion. RVPlus had no relationship with the U.N. and the contracts were fictitious.

Peterson also repeatedly claimed in RVPlus’s SEC filings that RVPlus had issued invoices and was owed millions of dollars in accounts receivable on the bogus contracts. In addition, RVPlus and Peterson gained control of more than 90% of RVPlus’s free trading shares and gave them to individuals who unlawfully sold them into the market.

“We allege that Peterson inflated RVPlus’s finances and expected profitability,” Andrew Calamari, director of the SEC’s New York regional office, said in a statement. “We also allege that using a pseudonym, he posted hundreds of messages to an online investors’ forum calling RVPlus stock ‘undervalued,’ and urging investors to ‘buy up as much as possible.’”

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey also announced criminal charges against Peterson.

— Check out Perez: DOL Took Fiduciary Rule Comments Seriously, Made Changes on ThinkAdvisor.


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