Fraudulent Investment Scheme Busted
The Securities and Exchange Commission has halted a fraudulent $4.5 million investment scheme by a Los Angeles-based company that purports to broker life settlements.
The restraining order shortly followed an asset freeze against Belal Faruki of Aurora, Ill., and his advisory firm Neural Markets LLC, who allegedly solicited highly sophisticated individuals to invest in the “Evolution Quantitative 1X Fund,” a hedge fund they managed that supposedly used a proprietary algorithm to carry out an arbitrage strategy involving trading in liquid exchange-traded funds (ETFs).
Having obtained an emergency court order, the SEC said Daniel Powell and his company Christian Stanley Inc. have spent the past seven years making believe that it was a legitimate company involved in the life settlement industry.
In life settlement, an individual with a life insurance policy sells that policy to another person, who then assumes responsibility for paying the premiums. Typically, the seller no longer wants the policy or can no longer afford to pay the premiums. In exchange, the insured party typically receives a lump sum payment that exceeds the policy’s cash surrender value, but is less than the expected payout in the event of death.
Contrary to what he told to investors, Stanley has never purchased or generated any revenue as a result of brokering the sale of a single life settlement, and has barely derived any revenue from any of his purported business ventures.
Instead, he used the Christian Stanley name as a vehicle to raise at least $4.5 million in an unregistered offering of debenture notes, and spent most of the money for purposes unrelated to its ostensible business operations, according to the SEC.
Powell misused investor funds to finance his stays at luxury hotels, visits to nightclubs and restaurants, and purchases of high-end vehicles.
George King for the U.S. District Court for the Central District of California granted the SEC’s request for a temporary restraining order and asset freeze against Powell and his companies. The court appointed Robb Evans & Associates LLC as temporary receiver over the entities.
“Powell and Christian Stanley created the façade of an actual business when in reality they have virtually no revenue,” said Rosalind Tyson, Director of the SEC’s Los Angeles Office.
“Most of the money raised from investors has been used to finance Powell’s extravagant lifestyle and for other purposes that have not been disclosed to investors.”
According to the complaint, Powell raised funds from at least 50 investors nationwide in the fraudulent debenture offering, promising investors fixed interest returns ranging from 5 to 15.5 percent annually for five-year terms. Powell claimed the notes were backed by assets such as a gold mine in Nevada and a coal mine in Kentucky that he said held coal deposits valued at $11.8 billion.
The SEC alleged that instead of using investor money to purchase life settlements or develop the coal and gold mines, Powell and Christian Stanley instead used investors’ money for such unrelated purposes as sales commissions and Ponzi-like payments to existing note holders.
Among Powell’s other personal expenditures with investor funds were $21,000 toward his school loans, more than $5,000 for cowboy boots, and nearly $5,000 to register for a dating service.
The SEC’s investigation was conducted by Lucee Kirka, Peter Del Greco, and Marc Blau and the litigation will be led by Spencer Bendell of the Los Angeles Regional Office.