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SEC Charges Advisor With Stealing to Pay for Lawsuit: Enforcement

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The Securities and Exchange Commission charged a Connecticut-based investment advisory business and its owner with stealing money from investors to settle a private lawsuit among other misuses.

The SEC alleges that Sentinel Growth Fund Management and its founder Mark J. Varacchi misrepresented to investors that money they deposited with the firm would be allocated to up-and-coming hedge fund managers for investment purposes. 

Sentinel Growth Fund Management was not registered with the SEC or any state to do business as an investment advisor.  

According to the SEC’s complaint, Varacchi and Sentinel Growth Fund Management did not transfer all the money as promised, instead commingling investor assets and manipulating account activity, account balances and investment returns as part of a scheme to siphon away investor funds. 

Varacchi and his firm allegedly stole at least $3.95 million from investors, including more than $1 million to settle litigation brought by Varacchi’s prior employer.

“As alleged in our complaint, Varacchi promised investors that their money would be routed to up-and-coming hedge fund managers when in reality he was diverting significant portions for personal use and unauthorized business expenses,” Anthony S. Kelly, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement.

The SEC’s complaint seeks disgorgement and penalties against Varacchi and Sentinel Growth Fund Management. The complaint also names two hedge funds as relief defendants for the purposes of recovering investor assets in their possession.  

SEC Fines California Man in Golf Resort Investment Scheme

The SEC charged a Southern California man with defrauding investors and misappropriating more than $1.3 million from a real estate investment fund he controlled, Caliber Partnership I LLC.

The SEC alleges that Paul A. Garcia of Newport Beach, California, raised $675,000 from 13 investors in 2014 and 2015 by claiming that Caliber would use their money to purchase an unfinished golf resort and then join a large real estate venture that was poised to go public. But as investor money came in, Garcia caused Caliber to borrow heavily to finance two real estate purchases and misappropriated more than $1.3 million of the borrowed funds and investor funds through separate companies he controlled.

The SEC further alleges that Richard T. Woods of Southlake, Texas, negligently misrepresented Caliber’s prospects in marketing materials that he authored and Garcia approved and used to attract investors.

According to the SEC’s complaint, the victims of the fraud included an 82-year-old who lost $250,000.

To settle the charges, Garcia, Caliber and the other companies involved in the fraud agreed to pay a total of more than $3.3 million in penalties and disgorgement of ill-gotten gains plus interest. Garcia also agreed to a court order prohibiting him from participating in securities offerings and from serving as an officer or director of a public company.

Woods agreed to be enjoined from future violations and to pay a penalty and disgorgement totaling approximately $30,000. All settling parties agreed to the sanctions without admitting or denying the allegations in the complaint.

SEC Charges Unregistered Broker With Bilking Family, Clients in Real Estate Scheme

The SEC filed a civil action on Jan. 31 in U.S. District Court for the Central District of California against Patric Ken Baccam, alleging that he conducted a fraudulent offering and sales of securities. The SEC also says that he acted as an unregistered broker by selling some of those securities away while associated with, and failing to disclose the sales to, Centaurus Financial Inc., a dually registered broker-dealer and investment advisor.

The Commission’s complaint alleges that, from October 2010 through July 2013, Baccam raised approximately $963,000 through the offer and sale of unsecured promissory notes to 18 brokerage customers and family members, representing the notes would be used to fund a venture “flipping” real estate for a profit.

According to the complaint, Baccam knowingly or recklessly made multiple fraudulent statements regarding the safety of the investments, the promised returns on investment, the use of investor funds, and the nature and experience of the issuers.

The complaint also alleges that Baccam engaged in a scheme to defraud investors, by, among other conduct, using newly invested funds to make interest payments owed to earlier investors, to give investors the appearance that his real estate venture was profitable and induce further investment.

The complaint seeks permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties against Baccam. The complaint also names as relief defendants, and seeks disgorgement plus prejudgment interest from, two of the note issuers, Prim Group LLC and Precision Research Group LLC, both of which Baccam controlled throughout the relevant period.

Court Orders Joseph Charles DiCrisci to Pay $2.9 Million for Illegal Precious Metals Transactions

The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge William P. Dimitrouleas of the U.S. District Court for the Southern District of Florida entered a final judgement against Joseph Charles DiCrisci, an owner and principal of Oakmont Financial Inc., for engaging in illegal, off-exchange precious metals transactions.

The court’s order requires DiCrisci to pay $735,329 in disgorgement and a $2.2 million civil monetary penalty. The order also imposes permanent trading and registration bans against DiCrisci and prohibits him from engaging in illegal, off-exchange precious metals transactions, as charged.

The court further finds that, from at least July 16, 2011 and continuing through at least July 27, 2012, Oakmont, by and through its employees, solicited retail customers by telephone to engage in financed precious metals transactions, which constitute illegal off-exchange retail commodity transactions and acted as a futures commission merchant without being so registered.

Precious metals were never delivered to any customers with respect to the leveraged metals transactions made on their behalf, according to the court order.

The Ccourt on Nov. 8 entered a default judgment order against Oakmont.

Market Maker Settles Charges in Fraudulent Pump-and Dump Scheme

The SEC announced that Darren Goodrich has agreed to admit wrongdoing and pay more than $805,000 to settle charges for his role in a scheme to manipulate the stocks of BioNeutral Group, NXT Nutritionals Holdings, Clear-Lite Holdings and Mesa Energy Holdings. The settlement is subject to court approval.

According to an SEC complaint filed Nov. 17, Goodrich facilitated the profitable dumping of the issuers’ stock by using his dual role as market maker and registered representative to arrange for coordinated and matched trading between and among accounts owned or controlled by his cohorts. Goodrich also pleaded guilty to criminal charges filed by the U.S. Attorney’s Office for the District of New Jersey.

The SEC’s action in this matter also names as defendants Samuel DelPresto and MLF Group LLC, both of Holmdel, New Jersey, and Donald Toomer of Las Vegas, all of whom the SEC previously charged with fraud for their respective roles in the alleged scheme. The SEC’s action continues against these defendants.

Court Orders Asset Freeze and Other Emergency Relief in ‘Hamilton’ Ticket Resale Ponzi Scheme

Following up on last week’s news, the SEC announced that it obtained an asset freeze and other preliminary relief against two New York City men accused of running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to such high-demand shows as Adele concerts and the Broadway musical “Hamilton.”

The temporary restraining order and asset freeze restrains defendants Joseph Meli and Matthew Harriton and their companies from violating certain antifraud provisions of the federal securities laws, orders that the defendants’ assets be frozen and prohibits them from accepting or depositing any additional investor funds.

In addition, the order requires defendants to provide, within five days, an accounting that identifies payments received from investors and the disposition of each such payment and also to identify any significant assets they hold. Finally, the order prohibits defendants from destroying or altering documents.

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