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Regulation and Compliance > Federal Regulation > SEC

SEC Takes Action to Stop Ponzi Scheme Selling ‘Annuities’

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The Securities and Exchange Commission on Friday filed an emergency action and obtained a temporary restraining order and asset freeze against a California-registered investment advisor and his entities to halt an ongoing Ponzi scheme targeting senior citizens in Southern California.

According to the SEC’s complaint, from at least January 2018 through the present, Paul Horton Smith Sr. offered and sold securities in his company Northstar Communications, and used his investment advisory firm eGate and insurance and estate planning company Planning Services Inc. to market the securities.

Smith and Northstar assured investors that their principal would be safe and secure invested in purported “private annuity contracts,” and they promised investors guaranteed annual interest payments between 3% and 10.5%.

In reality, “Smith’s and Northstar have not invested any investor funds in any securities, their representations to investors were false and misleading, and omitted material information,” the complaint states.

Smith continues his fraud. Since the issuance of the COVID-19 stay-at-home orders, Smith has continued to solicit investors by telephone and through meetings in his office or in investors’ homes, the complaint states.

Smith targets his marketing to older adults and retirees living in Riverside and San Bernardino counties. He solicits investors through financial workshops, free-meal seminars, investor events and one-on-one meetings.

Smith was planning a “comedy night” in May 2020 at a local theater, which was cancelled because of the COVID-19 stay-at-home orders.

The complaint states that Smith also allegedly used new investor funds to settle investor lawsuits and commingled funds.

In a parallel action, the U.S. Attorney’s Office for the Central District of California announced on May 21 that it filed a criminal complaint against Smith.

According to the SEC complaint, Northstar raised more than $5.6 million from at least 35 investors and paid out $5.2 million to those investors as interest payments or principal returned.

A hearing is scheduled for June 3 to consider continuing the asset freeze, issuance of a preliminary injunction, and appointment of a permanent receiver.

“As alleged in our complaint, Paul Horton Smith Sr. raised millions of dollars by touting his purported investment expertise and guaranteeing returns,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “Investors should be wary of investments promising no risk and high returns, which are classic warning signs of investment fraud.”


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