SEC Busts Ponzi Scheme in LA

Jack Humphrey, Regulatory journalist
April 16, 2012 /

A purported hedge fund is facing halt order after the Securities and Exchange Commission discovered it was actually a Ponzi scheme by a Los Angeles man who allegedly deceived members of his own community.

The SEC alleges that for the past two years, Shervin Neman raised more than $7.5 million from investors by claiming to be a hedge fund manager. Neman told investors that his purported hedge fund – Neman Financial L.P. – invested in foreclosed residential properties that would be quickly flipped for profit as well as in Facebook shares obtained in private transactions and other highly anticipated initial public offerings including Groupon, LinkedIn, and Angie’s List.

Although Neman promised investors big returns resulting from his investing acumen and access to pre-IPO shares of well-known companies, what they actually received was simply other investors’ money in hallmark Ponzi scheme fashion.

“Neman deceived members of his own community to raise money in this fraudulent Ponzi scheme,” said Michele Wein Layne, Associate Regional Director of the SEC’s Los Angeles Office.

“By exploiting investors’ trust in him, Neman was continually able to raise more money to pay back existing investors and finance an extravagant lifestyle.”

Previously, the SEC charged Ephren W. Taylor II , a self-described “Social Capitalist”, with running a Ponzi scheme that targeted socially-conscious investors in church congregations. Taylor allegedly made numerous false statements to lure investors into two investment programs being offered through City Capital Corporation, where he was the CEO. Instead of investor money going to charitable causes and economically disadvantaged businesses as promised, Taylor secretly diverted hundreds of thousands of dollars to publishing and promoting his books, hiring consultants to refine his public image, and funding his wife’s singing career.

According to the SEC’s complaint, Neman raised funds from at least 11 investors in the fraudulent securities offering. Most of the investors are members of the Los Angeles Persian-Jewish community along with Neman, who lives in the Century City area of Los Angeles.

More than 99 percent of the money Neman raised was used either to pay existing investors or fund his lavish lifestyle. Neman spent nearly $1.6 million of investor funds to buy jewelry and high-end cars as well as to finance his wedding and honeymoon, other vacations, and VIP tickets to sporting events.

Judge Jacqueline H. Nguyen for the U.S. District Court for the Central District of California issued the temporary restraining order and asset freeze against Neman and the entities he controlled.

The SEC’s investigation was conducted by Cindy Eson of the Los Angeles Regional Office. Molly White will lead the litigation. Joshua Bauder, Harden Sooper, and Yanna Stoyanoff conducted the SEC examination that prompted the investigation.

Judge Nguyen has scheduled a court hearing for April 23 at 2 p.m. on the SEC’s motion for a preliminary injunction.

 

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