The Securities and Exchange Commission charged a Westchester, New York-based investment advisor with fraud stemming from lies to retail investors about the value of their investments in a Ponzi-like scheme.

The SEC alleges that, starting in approximately 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances, many of whom were from his suburban community, in order to invest in a risky options trading strategy. 

He allegedly lured investors by informing them that he had a long and impressive track record of proven returns. He also allegedly lied to investors about the liquidity of investments, telling one investor that “what’s cool about my fund is that i’m [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless.” 

However, the SEC alleges that Scronic was actually hemorrhaging investor money through massive trading losses, with at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Scronic allegedly reported to investors total assets of at least $21,837,475 while the balance in his brokerage account on June 30, 2017 was just under $27,500.

According to the SEC’s complaint, when certain investors attempted to redeem their investments, Scronic did not disclose his inability to repay them. Rather, he allegedly provided investors with a steady stream of implausible excuses for why he could not pay them back. In other instances, Scronic sought to obtain additional investment funds from new and existing investors in order to satisfy redemption requests from other investors.

“Scronic’s alleged scheme is just another example of a so-called investment professional acting as fiduciary, but failing to deal honestly with his investors for his own financial benefit,” said Lara Mehraban, associate regional director of the SEC’s New York Regional Office. “Investors should be wary anytime they are promised high or consistently positive returns in a complex, hard to understand investment strategy.”

The SEC also alleges that Scronic began identifying himself as an investment advisor to a fictitious hedge fund in which he purported to sell interests, or “shares.” 

The SEC’s complaint seeks a permanent injunction, disgorgement, and penalties against Scronic.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Scronic.

SEC Obtains $58M Judgment Against Marley Coffee Pump-and-Dumper

The SEC obtained a $58 million judgment against a UK and Canadian resident charged with perpetrating a multimillion-dollar, international pump-and-dump scheme involving the stock of Jammin’ Java Corp., a company that used trademarks of the late reggae artist Bob Marley to sell coffee products. The company was co-founded by Marley’s son Rohan.

The final judgment bars Wayne Weaver from participating in penny stock offerings; and orders Weaver to pay disgorgement of $26.4 million, prejudgment interest of $5.2 million, and a civil penalty of $26.4 million, for a total of $58 million.

On Sept. 15, Weaver filed a notice of appeal.

The SEC previously obtained consent judgments against all other defendants named in the action, ordering the payment of more than $8 million in disgorgement, interest, and penalties.

In 2015, the SEC announced it had charged several individuals in the pump-and-dump scheme.

SEC Charges Investment Advisor With Stealing Money From Clients

The SEC announced fraud charges against an investment advisor and an operations manager for stealing approximately $378,000 from clients.

The SEC’s complaint alleges that Tarek Bahgat, a former resident of Williamsville, New York, who now lives in Egypt, misappropriated money from seven of his investment advisory clients, many of whom were senior citizens.

The SEC also alleges that, in some instances, Bahgat, by obtaining internet bill-paying privileges, impersonated his clients in telephone calls with broker-dealers holding the client accounts and caused money to be transferred from his clients’ accounts to himself or to WealthCFO LLC, a company Bahgat controlled.

The complaint further alleges that Lauramarie Colangelo, WealthCFO’s operations manager, posed as one of Bahgat’s clients during a telephone call with a broker-dealer.

The complaint seeks permanent injunctions and civil penalties from Bahgat and Colangelo, and disgorgement plus interest from Bahgat. The complaint names WealthCFO as a relief defendant for the purpose of disgorging illicit proceeds, plus interest, from the fraud in the company’s possession.

SEC Charges Advisor With Sending False and Misleading Account Statements to Investors

The SEC filed fraud charges against a San Marino, California advisory firm and its owner with misleading investors about the profitability of a fund they managed until SEC examiners discovered the fraud.

The SEC’s complaint alleges that Tweed Investment Services Inc. (TISI) and Robert Russel Tweed, TISI’s owner, formed Athenian Fund L.P. and raised more than $1.7 million from 24 investors.

According to the complaint, the investor funds were supposed to be invested in a master fund that would use a quantitative stock trading strategy. Instead, according to the complaint, Tweed and TISI invested the funds in two other investments that ultimately lost approximately $800,000, and then concealed those losses from the investors by issuing false and misleading account statements that made the fund appear as if it was profitable.

The complaint also alleges that investors who were able to redeem their interests received more money than they were entitled to because their redemptions were based on inflated asset values.

The complaint further alleges that Tweed and TISI misled investors for years, and only disclosed the losses after SEC examiners and state regulators uncovered the fraud during routine examinations.

The complaint seeks permanent injunctions and civil penalties.

SEC Obtains Final Judgment Against Founder of Bitcoin Mining Companies Used to Defraud Investors

The SEC obtained a final judgment against former Connecticut resident Homero Joshua Garza charged with conducting a fraudulent offering of unregistered securities and operating a Ponzi scheme.

The final judgment orders Garza liable for disgorgement of $9.2 million, the payment of which is deemed satisfied by the order of restitution that has been agreed upon in the parallel criminal case against him, and prejudgment interest in the amount of about $743,000.

The court’s entry of judgment against Garza resolves this litigation in its entirety. The SEC previously obtained an $11 million final judgment against GAW Miners and ZenMiner.

Garza was charged in a parallel criminal case and pleaded guilty on July 20, 2017, to one count of wire fraud. His sentencing is scheduled for Jan. 5, 2018.

SEC Obtains Final Judgment Against Former CFO Who Used Golf Talk to Hide Insider Trading Tips

The SEC obtained a final judgment against the former chief financial officer of a technology company and certified public accountant, who was charged, along with his son, with conducting a serial insider trading scheme involving tips of key nonpublic information in coded email messages disguised as discussions about golf.

The final judgment orders Robert Stewart liable for disgorgement of $153,700, which is the amount of illicit profits he earned as a result of the alleged illegal insider trading, plus $11,200 in interest, but provides that the disgorgement and interest obligation will be satisfied by the entry of a forfeiture order in the parallel criminal case. The final judgment also imposes a lifetime officer-and-director bar on Stewart.

Stewart, who pleaded guilty to criminal charges, also was suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.

Stewart’s son, Sean Stewart, was found guilty by a federal jury of securities fraud and was sentenced to three years in prison. Sean Stewart has appealed his criminal conviction and the appeal remains pending. The SEC’s action against Sean Stewart is pending and seeks permanent injunctions, disgorgement of ill-gotten gains plus interest, and civil penalties.