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SEC Stops $39M Investment Scam by Florida Advisor

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The Securities and Exchange Commission obtained an asset freeze and other emergency relief against Sarasota, Florida-based investment advisor Kinetic Investment Group LLC and its managing member, Michael Scott Williams, who the SEC said Tuesday raised about $39 million as part of a fraudulent, unregistered securities offering.

The SEC filed a complaint Feb. 20 in U.S. District Court, Middle District of Florida.

According to the complaint, Kinetic Group and Williams fraudulently raised millions of dollars by making material misrepresentations to investors who they solicited to invest in Kinetic Funds I LLC, a purported hedge fund that they managed.

Kinetic did not immediately return a phone call for comment Wednesday and an email message to the address listed on its website apparently was not delivered. ThinkAdvisor received a reply saying the address was either not found or “unable to receive mail.”

At least 30 investors located mostly in Florida and Puerto Rico were victimized by the scam, the SEC said, noting the defendants allegedly represented, among other things, that Kinetic Funds’ largest sub-fund invested entirely in U.S.-listed financial products and that at least 90% of its portfolio was hedged using listed options.

The SEC alleged, however, that Williams actually invested a significant part of the sub-fund’s assets in a private startup company owned by William instead. The complaint further claimed Williams misappropriated at least $6.3 million via undisclosed loans to himself and his entities.

“In April 2015, Williams used $37,000” of the funds “to pay off the mortgage on his relative’s house,” the complaint stated. He also used $1.5 million of the funds to buy three luxury apartments and two parking spaces for himself in San Juan, Puerto Rico, according to the complaint.

“Kinetic Group’s and Williams’ misrepresentations gave false comfort to investors that their investments would be secure and liquid,” according to Eric I. Bustillo, director of the SEC’s Miami Regional Office. “As alleged, however, Kinetic Group and Williams diverted a substantial portion of investor capital to Williams’ various business ventures and personal expenses,” Bustillo said in a statement Tuesday.

The SEC’s complaint charged Kinetic Group and Williams with violating the antifraud provisions of the federal securities laws. The SEC’s complaint also charged Williams with aiding and abetting Kinetic Group’s violations of the federal securities laws.

The SEC is seeking injunctions, disgorgement of allegedly ill-gotten gains with pre-judgment interest, and financial penalties against the defendants.

On March 6, U.S. District Court Judge William F. Jung granted the SEC’s request for emergency relief, including the asset freeze and an order for records preservation, against Kinetic Group, Williams, and several companies charged by the SEC as relief defendants, the SEC said. The court also granted the SEC’s request to appoint Mark Kornfeld as receiver over Kinetic Group and the relief defendants, the SEC said, adding its investigation into the scam is ongoing.

— Check out SEC Charges 3 More Sales Agents in Woodbridge Case on ThinkAdvisor.