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Regulation and Compliance > Litigation

SEC Charges Fake Advisor With Scamming $8.4M From Investors

By Jeff Berman

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What You Need to Know

  • The fake advisor that the SEC charged with defrauding at least 28 investors Thursday is already a convicted felon.
  • Aaron Cain McKnight, 48, of Dallas, allegedly ran the three separate schemes between March 2018 and September 2021.
  • He previously pleaded guilty to charges of conspiracy to import and distribute the controlled substance MDMA (ecstasy), and was sentenced to 110 months (more than nine years) in prison.

The Securities and Exchange Commission said Monday that it charged a convicted felon with creating three separate fraudulent investment schemes through which he allegedly stole over $8.4 million from at least 28 investors.

In a complaint filed Thursday in U.S. District Court for the Northern District of Texas in Dallas, the SEC charged Aaron Cain McKnight, 48, of Dallas, with running the three schemes between March 2018 and September 2021.

McKnight is already a convicted felon, the SEC noted in the complaint. In 2000, he was indicted for and ultimately pleaded guilty to charges of conspiracy to import and distribute the controlled substance MDMA (ecstasy) and was sentenced to 110 months (more than nine years) in prison.

In the same complaint filed Thursday, the SEC also charged Harmony Brooke McKnight, 40, of Texas, sister of Aaron Cain McKnight; BPM Global Investments, a Delaware company that the regulator said was “purported to be a financial services firm” under the control of the two McKnights; and BPM Asset Management, a Texas company also “purported to be a financial services firm” under her control.

Neither one of the BPM entities, each under the control of the two McKnights, was ever registered with the SEC, according to the regulator.

The SEC also charged attorney Kenneth Miller, 72; his New York law firm, Frost & Miller; and Sherry Rebekka Sims, 55, of Waxahachie, Texas, a former friend of McKnight’s and control person of the SubGallagher Investment Trust.

A ‘Similar Pattern’

Although the three schemes were separate, they “followed a similar pattern,” according to the SEC. In each one, McKnight allegedly portrayed himself as an experienced professional controlling financial services firms, through which he offered investment opportunities promising extraordinary returns.

In reality, the investment opportunities “did not exist,” according to the SEC. Using his fabricated credentials, McKnight allegedly raised funds from several investors.

Instead of using the funds to make investments for the clients, McKnight instead used the investors’ money for non-investment purposes, including his personal expenses, operation of his outside business and on Ponzi-like payments to earlier investors, according to the SEC.

The SEC alleged that Miller and his law firm substantially assisted McKnight’s first scheme by receiving and immediately distributing more than $2 million of investor funds at McKnight’s direction.

According to the SEC, Miller and F&M provided that assistance despite not having a clear understanding of why the funds were sent to F&M, whom the funds had come from or were going to, or what function the investors expected F&M to serve.

The SEC’s complaint also charged the two entities McKnight used in one of the schemes with violating various antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The complaint also charged Sims, Harmony Brooke McKnight, Miller and F&M with aiding and abetting certain of those violations, and named Timothy Neher and his company, Accelerated Venture Partners, as relief defendants.

The SEC’s complaint seeks permanent injunctions, including conduct-based injunctions, disgorgement of ill-gotten gains, civil penalties, and officer and director bars.

Without admitting or denying the SEC’s allegations, Sims consented to a bifurcated settlement, agreeing to the entry of a final judgment that, among other things, permanently enjoined her from securities violations and from soliciting, or issuing guarantees in connection with, the purchase or sale of securities, the regulator said.

Civil penalties will be determined by the court at a later date upon motion of the SEC, it added.

The SEC’s investigation was conducted by Jason Anthony and Michael Flanagan, and was supervised by Paul Pashkoff and Melissa Hodgman. The SEC’s litigation will be led by Anna Area and supervised by David Nasse.

 (Image: Adobe Stock) 

Jeff Berman

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