The US Securities and Exchange Commission has charged a Denver-based investment manager and his firm for conducting a multi-million dollar Ponzi scheme through the sale of shares in inv
The US Securities and Exchange Commission has charged a Denver-based investment manager and his firm for conducting a multi-million dollar Ponzi scheme through the sale of shares in investment funds that he manages.
The SEC also charged the limited liability companies that issued the securities. The SEC is seeking an emergency court order to freeze all of their assets.
The SEC alleges that Shawn R. Merriman of Aurora, Colorado, through his company Market Street Advisors, fraudulently obtained an estimated USD17m to USD20m from at least 38 investors residing in such states as Colorado, Minnesota, and Utah.
Merriman told investors that he would invest their funds in stocks and options, and he reported impressive and consistent annual returns to investors. Instead, Merriman did not trade stocks and options after his first year of operations, during which he suffered trading losses, and he used millions of dollars in investor funds to support his lavish lifestyle and pay out withdrawals by other investors.
"During the first three months of 2009, the SEC brought more than two dozen emergency enforcement actions to halt an ongoing fraud," says Robert Khuzami, director of the SEC’s division of enforcement (pictured). "We pursue Ponzi schemes with a great sense of urgency, and bring cases swiftly and successfully to protect investors."
According to the SEC’s complaint, filed in the federal district court in the District of Colorado, Merriman established his original investment fund in 1995. He had an aggressive investment strategy and lost approximately USD400,000 shortly after inception. Rather than reporting those losses to investors, Merriman started another fund to receive new investment money that would cover any withdrawal by investors from the first fund. Merriman subsequently started a third and fourth investment fund, and in classic Ponzi scheme fashion used new investment money to pay investors who were requesting withdrawals and, eventually, to support his lavish lifestyle.
The SEC alleges that Merriman on several occasions offered "rebates" to existing investors in order to entice them into investing additional money with him. While the investors purchased membership units in limited liability companies, those investors did not exercise any control over the operations of those entities. Merriman represented to investors that he would make all investment decisions, and claimed that all investor funds had been, were, or would be pooled and used to purchase securities.
Contrary to his representations to investors, the SEC alleges that Merriman used investor funds to repay other investors and for his own personal purchases of classic cars, motorcycles, motor homes, a cabin in Idaho, and fine art collections including works by Rembrandt that are worth millions of dollars.
