Enforcement News: SEC Charges Los Angeles-Based Actor and His Company with Operating a $690 Million Ponzi SchemePrint Article
- Posted on: Apr 14 2021
It has been over 100 years since Charles Ponzi was indicted for the fraudulent scheme that bears his name. In a Ponzi scheme, the operator creates an investment program in which “profits” are paid to earlier investors with money taken from later investors. The “profits” are, therefore, fictitious instead of returns on investment. Ultimately, Ponzi schemes collapse under their own weight, taking investors, many of whom are the later ones in the scheme, down with them.
Unfortunately, Ponzi schemes remain a familiar and unfortunate risk for investors. Because Ponzi schemes purport to offer high returns with little or no risk and rely on the celebrity of the individual or the credentials of a financial professional, investors are attracted to the investment products these scammers offer.
Over the years, this Blog has written numerous articles about Ponzi schemes and the enforcement proceedings that resulted from them. See, e.g., here, here and here. Today, we examine an enforcement proceeding brought by the Securities and Exchange Commission (“SEC” or the “Commission) against Zachary Horwitz, a.k.a. Zach Avery, a Los Angeles-based actor known for low budget features such as “Trespassers” and “The White Crow”, and his company 1inMM (one in a million) Capital, LLC, for allegedly running a Ponzi scheme that raised over $690 million. In connection with the proceeding, the SEC obtained an asset freeze and other emergency relief.
The SEC announced the proceeding on April 6, 2021 (here).
According to the SEC’s complaint (here), Horwitz falsely claimed to have a track record of successfully selling movie rights to Netflix and HBO when, in fact, neither Horwitz nor 1inMM had ever sold any movie rights to, or done any business with, HBO or Netflix. Horwitz allegedly showed investors fabricated agreements and emails regarding the purported deals with HBO and Netflix. The SEC alleged that Horwitz and 1inMM promised investors returns in excess of 35%, and for many years paid supposed returns on earlier investments using funds from new investments. The complaint further alleged that Horwitz misappropriated investor funds for his personal use, including the purchase of his multi-million-dollar home, trips to Las Vegas, and to pay a celebrity interior designer.
In late 2019, the scheme began to unravel, said the SEC, when Horwitz allegedly stopped making payments to investors with outstanding promissory notes and provided false explanations as to why the payments had stopped, such as that Netflix and HBO had failed to make promised payments.
“We allege that Horwitz promised extremely high returns and made them seem plausible by invoking the names of two well-known entertainment companies and fabricating documents,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “We obtained an asset freeze on an emergency basis to secure for the benefit of investors what remains of the money raised by Horwitz.”
The SEC charged Horwitz and 1inMM with violating the antifraud provisions of the federal securities laws. In addition to the asset freeze and other emergency relief granted by the Court, the SEC is seeking a permanent injunction, disgorgement, prejudgment interest, and civil penalties against Horwitz and 1inMM. The Court set a hearing for April 19, 2021, to determine if the asset freeze should remain in force for the duration of the litigation.
On the same day that the SEC announced its enforcement proceeding, the Department of Justice (“DOJ”) announced (here) that it brought criminal charges against Horwitz. The DOJ alleges that Horwitz is “in default to investors on a total outstanding principal of approximately $227 million.” The criminal complaint that the DOJ filed against Horwitz charges him with wire fraud.