Family-run Ponzi Scheme Busted

Jack Humphrey, Regulatory journalist
November 29, 2011 /

A Bethesda, Md. man and several family members and friends have been caught under the sun defrauding investors in the Washington D.C. metropolitan area with their multi-million dollar Ponzi scheme.

The investigation was conducted by Sarah Allgeier, Richard Johnston and Donato Furlano.

The Securities and Exchange Commission claimed that Garfield M. Taylor lured middle-class residents in his community who are inexperienced with investing to shell out cash for the promissory notes issued by his two companies that engaged in purportedly low-risk options trading.

Taylor urged investors to refinance their homes and use any available means to invest, including their personal savings and retirement funds. He promised returns as high as 20 percent per year and falsely assured investors that their investments would be protected by a “reserve account” or that he would employ a “covered call” trading strategy that would not touch the principal amount of their investment, according to the SEC.

According to the SEC’s complaint filed in federal court in Washington D.C., Taylor and his companies instead engaged in very high-risk, speculative options trading and suffered massive losses. Taylor relied upon money from new investors to pay returns to earlier investors in typical Ponzi scheme fashion.

The SEC added that he also siphoned off $5 million in investor funds to pay family and friends and for other personal uses, including $73,000 to the private school his children attended.

The Ponzi scheme allegedly defrauded more than $27 million from approximately 130 investors from 2005 to 2010. The scheme ultimately collapsed in the fall of 2010 when the companies’ accounts were depleted by the trading losses and interest payments to investors.

The SEC’s complaint charged Taylor’s companies Garfield Taylor Inc. and Gibraltar Asset Management Group LLC — which were not registered with the SEC — as well as five collaborators in Taylor’s scheme, including Maurice G. Taylor, Randolph M. Taylor, Benjamin C. Dalley, Jeffrey A. King, and William B. Mitchell.

According to the SEC’s complaint, Garfield Taylor and the others jointly prepared and finalized a Gibraltar PowerPoint presentation for prospective investors that was riddled with false and misleading statements.

They misrepresented the nature of the company’s options trading strategy, the anticipated rate of return, the protections offered by its outside accountant, and the overall level of risk involved in an investment with Gibraltar.

They pitched the PowerPoint presentation to potential institutional investors and charitable organizations, including a Washington D.C.-based children’s charity and a Baptist church in Maryland. Garfield Taylor went so far as to provide the Baptist church with a fake “letter of recommendation” from Charles Schwab as he pitched the investment opportunity.

The SEC alleges that in order to maintain a steady flow of new investor money, Garfield Taylor induced current investors and others including King and Mitchell to solicit and refer new investors to him in exchange for commission payments based on the amounts invested.

Garfield Taylor, a non-licensed securities broker, persuaded several individuals to give him online access to their personal brokerage accounts so he could place trades and give them a promised share of any profits generated.

The SEC’s litigation will be led by Richard Hong.

 

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