Ponzi Scheme Charges Filed Against 2 Florida Men

Jack Humphrey, Regulatory journalist
August 30, 2011 /

The Securities and Exchange Commission has charged two Florida men for defrauding teachers and retirees in a Ponzi scheme purported as a private equity fund that siphoned about $22 million from more than 100 investors.

According to the SEC’s complaint filed in U.S. District Court for the Middle District of Florida, James Davis Risher of Sanibel orchestrated the fund’s trading operations, while Daniel Joseph Sebastian of Lakeland distributed offering materials and solicited investors for the fund.

Ponzi scheme is an investing scam that generates returns for older investors by fraudulently promising new investors with high returns, as in what Bernard L. Madoff Investment Securities LLC (BMIS) did to investors in an earlier case of Ponzi scheme, one of the most massive such cases this year.

Risher allegedly made investors to believe he had substantial experience in trading equities and providing wealth and asset management services, when in fact he only had a “lengthy criminal history, spending 11 of the last 21 years in jail instead of growing a thriving retail brokerage business as he claimed.”

The SEC alleges that Risher and Sebastian falsely told investors that the fund earned annual returns ranging from 14 percent to 124 percent by investing in public equity securities through a broker-dealer.

To bring the fraud a bit further, they sent investors forged account statements showing such high returns to beef up their false claims.

“Only a fraction of the money raised was actually invested, and Risher instead misspent investor funds on such personal purchases as jewelry, gifts, and property in North Carolina and Florida. Risher and Sebastian also paid themselves millions of dollars in phony management and performance fees,” the SEC said.

“Risher, who masqueraded as a highly successful equity trader, teamed up with Sebastian to tout sophisticated trading strategies they claimed would generate substantial profits for investors. Instead, Risher and Sebastian used investors’ life savings and retirement nest eggs to line their own pockets,” said Eric Bustillo, Director of the SEC’s Miami Regional Office.

According to the SEC’s complaint, Risher and Sebastian marketed the fund under the names Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund, describing themselves as “two unique individuals” who used their expertise to “create an investment vehicle that would allow investors to capitalize from both bull and bear markets.”

The SEC further claimed that Sebastian often solicited his former customers at his prior job as an insurance broker. He primarily pitched the investment opportunity to educators, retirees, and members of several churches in Florida, but also solicited investors in California, other states, and Canada.

Sebastian persuaded former customers to roll over money in their insurance and annuity products into the fund, telling them the fund would provide a higher rate of return than they could receive from the products he had previously sold them. At least one investor liquidated an annuity she had purchased from Sebastian and invested the proceeds in the fund.

In several misrepresented financial statements, Risher and Sebastian concealed from investors Risher’s criminal history, the fund’s investment strategy, the fund’s investment returns, the safety of investors’ principal, and the existence of audited financial statements.

The U.S. Attorney’s Office for the Middle District of Florida, which conducted a parallel investigation of this matter, has filed criminal charges against Risher.

 

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