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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Advisor With Bilking Investors to Fund Lifestyle: Enforcement

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The Securities and Exchange Commission charged an Atlanta investment advisor and an entity he controls with defrauding a private fund they managed and its investors.

The SEC’s complaint, filed in federal district court in Atlanta, alleges that, beginning in August 2009 and continuing until at least June 2018, Joseph Meyer Jr.,and Statim Holdings Inc. offered and sold four classes of limited partnership interests in Arjun L.P., a private fund.

The complaint alleges that Meyer promised investors that, in return for giving up substantial portions of their profits, investors in one class would be protected from losses, a feature he called “No Loss Protection,” and investors in two other classes would receive guaranteed fixed returns.

The complaint further alleges that Meyer told investors that the relinquished profits would be used to fund the No Loss Protection and guaranteed returns when Arjun had insufficient profits.

“Unbeknownst to investors, Meyer caused Statim to withdraw from the fund substantially all of the relinquished profits as they were generated, using them to pay his living expenses,” according to the complaint.

The complaint alleges that, to deceive investors, Meyer recorded on Arjun’s books a receivable due from Statim. According to the complaint, Meyer claimed to pay down Statim’s receivable, but did so by directly or indirectly borrowing money from the fund, therefore making the guarantees and No Loss Protection illusory because they were backed by nothing other than the receivable that sometimes grew to $2.9 million, or 11.5% of Arjun’s net asset value.

The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.

SEC Charges Real Estate Developer for Fraud to Fund Luxury Hunting Ranch

The SEC filed charges against Texas resident and real estate developer Phillip Michael Carter, two other individuals, and several related entities for conducting a multimillion-dollar offering fraud.

The SEC’s complaint alleges that Carter, along with Bobby Eugene Guess and Richard Tilford, raised almost $45 million from more than 270 investors across the United States by selling short-term, high-yield promissory notes issued by a number of shell companies intentionally named to confuse investors.

The complaint alleges that Carter, Guess, and Tilford claimed to offer investments in Carter’s legitimate real estate development companies, which were purportedly backed by hard assets from actual real estate development projects.

Instead, the complaint alleges, the individual defendants sold securities issued by unrelated, but closely named, entities that had no assets.

Carter then misappropriated investor funds to pay $1.2 million towards a personal IRS tax lien, operate a luxury hunting ranch, fund his lifestyle, and make over $3 million in Ponzi payments to investors.

The SEC is seeking relief from the defendants in the form of permanent injunctions and conduct-based injunctions, disgorgement, prejudgment interest, and civil penalties. The SEC is also requesting disgorgement and prejudgment interest from the four relief defendants. The SEC also requested that the court freeze Carter’s assets, order him to give an accounting, and issue him a document preservation order.

In related criminal proceedings pursued by the Texas State Securities Board, Carter and Tilford were indicted on Nov. 6 for, among other things, securities fraud, sales of unregistered securities, and sales of securities by an unregistered agent or dealer. Those charges remain pending.

Relief Defendant in Fraud Case Against Illinois Advisor Ordered to Pay $1M

The United States District Court for the Northern District of Illinois ordered a relief defendant to pay more than $1 million in an SEC enforcement action charging Daniel Glick, a Chicago-based investment advisor, with misappropriating millions from elderly investors.

The complaint named Edward Forte as a relief defendant, alleging that he received more than $1 million of the money that had been misappropriated from Glick.

According to the SEC’s complaint, Glick and his unregistered investment advisory firm, Financial Management Strategies Inc. (FMS), provided clients with false account statements that hid Glick’s improper use of client funds to pay personal expenses and his improper transfers of funds to Forte and another individual. The SEC further alleged that Glick sent more than $1 million to Forte or to third parties for Forte’s benefit.

The final judgment against Forte orders him to pay disgorgement of $1.01 million, representing money he received as a result of Glick’s and FMS’ violations alleged in the complaint, along with prejudgment interest of $30,633.

Court Dismisses Appeal by Former F-Squared CEO

The SEC announced that the U.S. Court of Appeals for the First Circuit dismissed the appeal filed in May 2018 by Howard Present, co-founder and former CEO of investment management firm F-Squared Investments.

In March 2018, a federal judge ordered Present to pay over $13 million after a federal jury returned a verdict against him for making false and misleading statements to investors as the public face of F-Squared.

The SEC charged Present and F-Squared in 2014 with misleading investors about the AlphaSector strategy, the flagship product of F-Squared, which Present launched in the wake of the financial crisis. F-Squared agreed to pay $35 million and admit wrongdoing to settle the agency’s charges, but Present opted to contest the SEC’s charges.

After a three-and-a-half week trial, the jury deliberated for less than one day before finding Present liable on all of the agency’s charges against him.

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