The Securities and Exchange Commission announced charges against a Florida-based company, its CEO and its top sales agent accused of conducting a boiler room scheme that solicits investments in a business purportedly facilitating online and cell phone sales of lottery tickets in various states.
The SEC has obtained an emergency court order freezing the assets of LottoNet Operating Corp., David Gray and Joseph A. Vitale. The SEC’s complaint alleges that they misrepresented to investors that their money would be used to develop and market LottoNet and that sales agents did not receive commissions.
However, according to the SEC, at least 35% of investor proceeds were allegedly paid to boiler room sales agents in the form of commissions, and LottoNet allegedly siphoned investor funds for personal spending on clothing, wedding-related expenses and strip clubs.
“As alleged in our complaint, little did investors know they were being duped with a script based on misrepresentations while investor funds were being spent in strip clubs,” Eric I. Bustillo, director of the SEC’s Miami Regional Office, said in a statement.
What Your Peers Are Reading
According to the SEC’s complaint, which was unsealed in federal court on Monday, among the pitches used in sales agent scripts prepared for cold calls to investors was “you’re looking at a monthly dividend payout of $8,500 every month” on a $25,000 investment if LottoNet reaches 1% market share.
The scripts also allegedly touted the purported safety of the investment, noting a 60% return as a “worst case” scenario if the company was ever sold.
The SEC alleges that while LottoNet has raised a total of approximately $4.8 million from investors, the company had only paid $10,500 in investment returns to investors through the end of February. Sales agents allegedly have been paid more than $1.1 million out of investor funds.
The SEC’s complaint further alleges that Vitale, who personally raised at least $1.4 million from investors, used the alias Donovan Kelly in an apparent attempt to hide from investors that he is permanently barred by the Financial Industry Regulatory Authority.
Former TelexFree President Sentenced to 6 Years in Prison for Operating Pyramid Scheme
James M. Merrill, the former president of TelexFree Inc. and TelexFree LLC, was sentenced to six years in federal prison and three years of supervised release for his role in operating a pyramid scheme through TelexFree.
On May 9, 2014, Merrill, of Ashland, Massachusetts, and another defendant, Carlos N. Wanzeler, who is a fugitive located in Brazil, were charged in a federal criminal complaint with conspiracy to commit wire fraud.
The criminal charges against Merrill arose out of the same fraudulent conduct alleged by the SEC in a complaint filed in April 2014. The SEC’s complaint alleged that TelexFree, Merrill, Wanzeler, and other defendants claimed to run a multilevel marketing company that sold telephone service based on “voice over Internet” (VoIP) technology but actually were operating an elaborate pyramid scheme.
In addition to charging Merrill and the company, the SEC charged several other TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of ill-gotten investor funds.
The SEC’s action, which remains pending against all parties, seeks injunctions against each of the defendants from further violations of the charged provisions of the federal securities laws, disgorgement of ill-gotten gains, and civil monetary penalties, among other things.
SEC Obtains TRO and Asset Freeze in Investment Scheme Involving Seniors
The SEC announced an emergency asset freeze and temporary restraining order against a Chicago-based investment advisor and his financial management company accused of scamming elderly investors out of millions of dollars.
The SEC alleges that Daniel H. Glick and his unregistered investment advisory firm Financial Management Strategies (FMS) provided clients with false account statements to hide Glick’s use of client funds to pay personal and business expenses, purchase a Mercedes-Benz, and pay off loans and debts among other misuses.
According to the SEC’s complaint, Glick was barred by FINRA in 2014 and had his Certified Financial Planner designation and Certified Public Accountant license revoked for conduct unrelated to these SEC charges.
The SEC’s complaint also names Glick Accounting Services, Glick’s business partner David B. Slagter, and Glick’s business acquaintance Edward H. Forte as relief defendants for the purposes of recovering client funds that Glick transferred or paid them in the form of advances or loans.
The court issued a temporary restraining order against Glick and FMS at the SEC’s request, and issued an order freezing the assets of Glick, FMS and Glick Accounting Services.
Overseas Traders Paying Back All Profits Plus Penalties in Insider Trading Case