The SEC Stops a $102 Million Ponzi Scheme

• Posted on: Jul 11 2018

Investing in the market involves different degrees of risk. The reward for taking on risk is the potential for a greater investment return. The flip side, of course, is the potential to lose some or all of the money invested. Thus, when it comes to investing, there is no such thing as a sure thing.

Nonetheless, there are people who promise no risk, no loss investing. They claim that they can place a person’s money into a “can’t miss” investment, where the risk of loss is minimal, if not non-existent, and the returns are above market. Sounds too good to be true. Not for the Ponzi scheme organizer.

What is a Ponzi Scheme?

“A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. With little or no legitimate earnings, Ponzi schemes require a constant flow of money from new investors to continue. Ponzi schemes inevitably collapse, most often when it becomes difficult to recruit new investors or when a large number of investors ask for their funds to be returned.” See https://www.sec.gov/spotlight/enf-actions-ponzi.shtml.

Shutting down Ponzi schemes and holding the organizers accountable for such frauds is an important part of the SEC’s enforcement mission. Recently, the SEC announced action it had taken against Ponzi scheme organizers responsible for bilking investors out of $102 million.

The SEC Files Charges and Obtains an Asset Freeze Against the Organizers Behind a $102 Million Ponzi Scheme

On June 19, 2018, the SEC announced (here) that it had filed charges and obtained an asset freeze against the organizers of a Ponzi scheme that defrauded investors out of $102 million.

According to the SEC, the defendants defrauded more than 600 investors across the U.S. through the sale of securities in companies they controlled, including First Nationle Solution LLC, United RL Capital Services, and Percipience Global Corp.  The SEC alleged that the defendants told investors that their funds would be used for the companies and that they would receive guaranteed dividends or double-digit returns.  However, alleged the SEC, the defendants spent at least $20 million to enrich themselves, paid $38.5 million in Ponzi-like payments, and transferred much of the remainder in transactions that were unrelated to the issuers’ purported businesses.

The SEC charged Perry Santillo (“Santillo”) of Rochester, New York, Christopher Parris (“Parris”), also of Rochester, Paul LaRocco (“LaRocco”) of Ocala, Florida, John Piccarreto (“Piccarreto”) of San Antonio, and Thomas Brenner (“Brenner”) of Orville, Ohio, along with the three companies.

“We allege that the defendants engaged in a massive fraud and swindled investors to line their pockets with ill-gotten gains,” said Marc P. Berger, Director of the SEC’s New York Office. “Investors should be on high alert whenever they are promised guaranteed returns.”

The SEC charged Santillo, Parris, LaRocco, Piccarreto, Brenner, and the three issuers with violating the antifraud provisions of the federal securities laws.  The court granted the SEC’s request for an asset freeze and a temporary restraining order.

The SEC’s complaint, which was filed in the United States District Court for the Southern District of New York, can be found here.

Takeaway

As noted in a prior Blog post (here), the SEC has warned investors to be vigilant in protecting themselves before they invest money. (Here.) This means asking questions, many of which are based upon the common features of a Ponzi scheme, e.g., high investment returns with little or no risk, overly consistent returns, unregistered investments, unlicensed sellers, secretive and/or complex strategies, issues with paperwork, and difficulty receiving payments. If these questions are not answered, investors should not be afraid to request more information. Any push-back or doublespeak should raise red flags.

In addition to asking questions, investors should take other actions to protect themselves from Ponzi scheme organizers.  For example, investors should demand detailed reports – most perpetrators of Ponzi schemes send periodic reports to investors with limited information. Investors should also perform a background check on the financial professional (for example, through FINRA’s BrokerCheck (here)) and research the investment product before investing their money. Investors should not rely on glossy brochures, sales pitches that play on emotions, and celebrity endorsements (just because a celebrity puts his/her name to an investment does not mean it is legitimate).

In short, investors should be skeptical. After all, “if it sounds too good to be true, then it probably is.”