A California advisor agreed to plead guilty to one criminal count of wire fraud as part of a $3.3 million Ponzi scheme in which he defrauded investors and used most of their funds not for actual investments, but instead for his own personal purchases or to pay earlier investors in the scam, according to the U.S. Attorney’s Office for the Central District of California.
“When Brown enters his guilty plea, he will face a statutory maximum sentence of 20 years in federal prison,” the U.S. Attorney’s Office said Thursday.
The criminal information and a related plea agreement were filed Aug. 28 in U.S. District Court, Central District of California in Los Angeles, where Steven F. Brown, 52, of Marina del Rey, is scheduled to make his initial court appearance on Sept. 15.
In his plea agreement, Brown admitted he controlled and operated Alpha Trade Analytics, a financial consulting and investment company he mainly ran out of his home without being a registered broker or dealer in securities, according to the U.S. Attorney’s Office. Brown also served as the accountant for a nonprofit organization providing dance and theater arts education to kids and young adults in Los Angeles, and had access to its bank accounts, the U.S. Attorney’s Office said.
In a complaint filed Thursday in the same Los Angeles court, Brown was accused of, from at least February 2015 through March 2018, soliciting investments including from people he encountered through his position with his employer and via his relationship with its executives and employees, that gave him access to high-net-worth individuals. (As it turned out, the solicitations were actually made from April 2014 to May 2018, the U.S. Attorney’s Office said after the plea agreement.)
Brown raised at least $7.5 million from about 75 investors, promising them guaranteed monthly returns from the Alpha Fund, the complaint alleged. Brown, while serving as the investment advisor to the Alpha Fund, claimed the Alpha Fund would invest money in financial markets including trading securities, according to the complaint.
Using a small portion of investor funds, estimated to be about $212,000, the Alpha Fund bought and sold securities including short sales and trading on margin, according to the complaint. The Alpha Fund traded securities in 2015 using investor money, but the trading was not profitable, according to the complaint.
“Brown raised at least $7.5 million from investors and used at least $5.3 million in investor funds to pay returns he promised to the Alpha Fund investors or to return their principal” and “misused at least $1.4 million in Alpha Fund money by commingling investor funds with his own and using Alpha Fund money to pay his personal expenses,” according to the complaint.
As an example, between February 2015 and March 2018, Brown paid personal expenses of at least $295,000 for student loan debt, travel costs, automobile loans and at retail stores, according to the complaint.
In total, Brown caused losses of about $2.2 million to more than 10 victims, including almost $700,000 in losses to his former employer based on the money he embezzled from it, according to the plea agreement.
The Securities and Exchange Commission announced Thursday it charged Brown with fraud involving the same Ponzi scheme, making similar claims in a complaint it filed in the same court. The SEC complaint charged Brown with violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.
Without admitting or denying the allegations of the SEC’s complaint, Brown consented to the entry of a judgment imposing a permanent injunction, which was subject to court approval, the SEC said. Its complaint also sought the return of ill-gotten gains plus prejudgment interest and civil penalties to be determined by the court upon a motion filed by the SEC.
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