The Securities and Exchange Commission announced that it has charged a former financial advisor with defrauding investors and spending their money on herself and to make Ponzi-like payments to earlier investors in the alleged scheme.
The SEC’s complaint alleges that Dawn Bennett, the the former host of the radio show “Financial Myth Busting with Dawn Bennett,” and DJB Holdings LLC raised more than $20 million by selling notes issued by the company, a Washington, D.C., luxury sports apparel firm.
According to the complaint, Bennett exaggerated the safety of the notes and success of her firm, touting it as a profitable business able to pay annual returns as high as 15%.
While Bennett said investor funds would be used for corporate purposes, she spent some on personal expenses and used other funds to repay earlier investors, a hallmark of a Ponzi scheme.
According to the complaint, Bennett took steps to conceal and continue the alleged scheme, including lying to regulators about the note sales, repaying investors with loans she obtained by inflating her net worth, and replacing existing convertible notes with sham promissory notes.
The SEC seeks a permanent injunction, disgorgement plus interest, and penalties.
In a parallel case, the U.S. Attorney’s Office for the District of Maryland unsealed criminal charges against Bennett.
SEC Charges Broker With Bilking Elderly Customers
The SEC charged Leon Vaccarelli, a Connecticut-based broker representative and investment advisor, and his company with fraudulently persuading several elderly customers to invest with him. He then spent their money on his own living and business expenses, according to the SEC.
The SEC’s complaint alleges that instead of investing the customers’ money in such things as conventional brokerage accounts and so-called separately managed accounts as promised, Vaccarelli deposited customer funds into his personal and business bank accounts.
He allegedly commingled the funds with his own money and used them for his own purposes, and in some instances he used customer funds to pay returns to earlier investors.
According to the SEC’s complaint, Vaccarelli asked one customer to sign an agreement that she would not provide certain information to the Financial Industry Regulatory Authority or the SEC.
Vaccarelli allegedly sold more than $450,000 in securities that were held in trust for the care and maintenance of a beneficiary and used some of the proceeds to pay business and personal expenses.
The SEC alleges that Vaccarelli defrauded clients of more than $1 million, and the agency is seeking an asset freeze against Vaccarelli, individually and doing business as Lux Financial Services, and his company, LWLVACC, LLC.
The complaint seeks disgorgement of ill-gotten gains plus interest, penalties and permanent injunctive relief.
Advisory Firm and Founder Charged for False Performance Claims in Advertising
The SEC announced fraud charges against investment advisor Navellier & Associates Inc. and its founder and chief investment officer, Louis Navellier.
The SEC’s complaint alleges that Navellier and his firm defrauded their clients and prospective clients from 2010 to 2013, misleading them about the performance track record of the Vireo AlphaSector investment strategies that the firm offered under the Vireo brand name.
Navellier and his firm allegedly breached their fiduciary duty to clients and prospective clients by ignoring and concealing red flags that should have alerted them that the investment strategies had not performed as advertised. Navellier & Associates also allegedly distributed materially false advertisements and client communications about the performance track record of the investment strategies.
When Navellier and his firm realized their misrepresentations could get them in legal trouble, they allegedly sold the Vireo line of business in August 2013 for $14 million, rather than correcting their prior misrepresentations to their clients or informing their clients about their conflicts of interest in selling the Vireo business.
Navellier & Associates’ advertisements claimed that client assets had been invested in the investment strategies from April 2001 to September 2008 and that the strategies had significantly outperformed the S&P 500 index from April 2001 to September 2008. In fact, no client assets had tracked the strategy from April 2001 through September 2008, and even as a back-test the claimed performance was substantially overstated.
SEC Files Charges in Oil Drilling Investment Scheme
The SEC filed a civil injunctive action against two Tennessee men and an accomplice in Fort Lauderdale, Florida, for defrauding investors, whom they lured by false promises of high returns from an oil drilling investment opportunity.
According to the SEC’s complaint, David Greenlee and David Stewart Jr. orchestrated the $15 million scheme by recruiting and controlling a network of salesmen who offered and sold investors a stake in various companies purportedly using enhanced oil recovery techniques like fracking to extract and sell oil from wells in Kansas, Oklahoma, and Texas. Investors were allegedly promised profits of 15 to 50% per year for decades.
The SEC alleges that Greenlee and Stewart used fake names like “Dave Johnson” when speaking to investors in order to hide their past criminal records, and they diverted nearly two-thirds of the money raised from investors to pay themselves and their salesmen as well as advertise for new investors.
The SEC says minimal funds were used for oil production at just a few of the wells in order to create the appearance of oil production and dupe investors who wanted to see activity in-person.
The SEC further alleges that Richard “Ric” Underwood helped Greenlee and Stewart draft false offering brochures, and he oversaw a boiler room sales team of telemarketers in Florida as they solicited investors nationwide.
The SEC seeks the disgorgement of ill-gotten gains plus pre-judgment interest, civil penalties and permanent injunctions.
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