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.