Tied Legs of Investment Companies After Fraud Attempt
With false assurance of protected investments through a ‘lock box account’, two investment companies in Connecticut were able to extract hundred millions of dollars from hedge funds starting 2001 to 2008 by selling unrealized promisory notes to investors.
In a subsequent settlement with Securities and Exchange Commission, however, Marlon Quan, owner of the investment companies (Stewardship Investment Advisors LLC and Acorn Capital Group LLC) involved in a fraudulent investing scam, tried to divert the compensation for the injured investors by negotiating to funnel the settlement fees worth $14 million to his own accounts and other entities connected to him.
The fraudulent scheme was originally designed so that the US investors would receive nothing from the settlement fees.
Quan also tried to funnel into his own accounts “nearly $6 million of the settlement amount to be paid to a German bank, more than $7 million to be paid to a liquidator appointed by a Bermuda court for certain overseas fund investors, and approximately $862,500 to be directed to pay Quan’s lawyers and other expenses,” the SEC said.
Robert Khuzami, Director of the SEC’s Division of Enforcement, said Quan and his investment companies “assured his fund investors about safeguards that did not exist and made up phony transactions to hide Petters’s defaults, all while he pocketed millions of dollars in fees.”
The fraudulent scheme operated by Minnesota businessman Thomas Petters had illegally generated more than $90 million in diverted fees intended for US investors victimized by the fraud. According to SEC, when Petters and Quan’s investment companies failed to pay the funds they falsely made the defaults to appear that they were expenses from several trips and transactions.
Quan and his investment companies were charged for violations of the Securities Act of 1933 and 1984 and of the Investment Advisers Act of 1940. The regulators ordered the investment companies to disgorge their illegally acquired wealth with additional prejudgment interest and fines. In addition, wife Florene Quan is named relief defendant as well as an affiliate of Acorn Capital, Asset Based Resource Group LLC.
Judge Ann Montgomery of the U.S. District Court for the District of Minnesota released the order freezing the money paid to the firms affiliated with the investment companies and ordered that the amount be placed to a separate account while awaiting the hearing on April 14.