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Regulation and Compliance > Federal Regulation > SEC

Ex-Broker Charged With Bilking Retired San Antonio Cops

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A former broker/RIA and his firm defrauded investors out of more than $14 million as part of a scheme involving the offer and sale of purportedly secured promissory notes that targeted mainly retired San Antonio Police Department officers and other first responders, according to the Securities and Exchange Commission.

Defendant Victor Lee Farias, 46, of Fair Oaks, Texas, was previously registered as an RIA and broker, most recently at Capital Guardian in San Antonio, in 2012-2013, according to the Financial Industry Regulatory Authority’s BrokerCheck website. Farias did not immediately respond to a request for comment.

In a complaint filed Thursday in U.S. District Court for the Western District of Texas in San Antonio, the SEC claimed Victor Lee Farias and his company, Integrity Aviation & Leasing, informed investors their money would be used by IAL to buy aircraft engines and other aviation assets that would be leased or sold to major airlines and that revenue from that business would be used to pay investors interest on their investments at the rate of 10%-12% a year.

“In fact, Farias and IAL misrepresented many facets of the offering, misspent a significant portion of the investors’ funds, and used only a small portion of the investor funds for their intended purpose,” the complaint said.

Specifically, Farias and IAL used about $6.5 million of the $14 million raised to make Ponzi-like payments to investors, invested about $2.7 million in a friend’s gas station and convenience store project, and paid almost $1 million in undisclosed and impermissible sales commissions to IAL’s sales staff for their successful efforts in recruiting investors to buy IAL promissory notes, the SEC alleged.

Farias also “misappropriated $2.4 million of investor funds for his own personal use, including disbursements for meals, entertainment, auto expenses, retail purchases, travel, apartment rent, jewelry and other luxury retail purchase, and golf and country club expenses,” according to the complaint.

Farias continued to mislead investors after he learned of the SEC’s investigation, including by using the letterhead from the SEC’s investigative subpoena as “proof” for investors that he was working with the SEC to take IAL public.

“As we allege, Farias encouraged his victims to invest their hard-earned retirement nest eggs into his fraudulent business,” according to David Peavler, regional director of the SEC’s Fort Worth, Texas office. “Investors should always proceed cautiously whenever someone suggests moving funds from traditional retirement accounts to self-directed IRAs in order to make an investment.”

The SEC’s complaint charged Farias and IAL with violating antifraud and securities registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement plus prejudgment interest and civil penalties.

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