The Securities and Exchange Commission (SEC) has charged a South Florida man with defrauding at least 14 investors by soliciting them to invest in a Ponzi scheme.
A significant number of the victims were members of the gay community in Wilton Manors, Florida and included inexperienced, unaccredited investors.
In the complaint filed in the US District Court for the Southern District of Florida, the SEC alleges that James F Ellis, 69, a resident of Wilton Manors, Florida, fraudulently solicited investors for George Elia from 2004 to 2011.
Elia operated pooled investment vehicles under the names Investor Funding Club and Vision Equities Funds. Elia purported to trade in stocks and earn annual returns as high as 26 percent, but was actually running a Ponzi scheme and paying returns to existing investors from new investor funds. In April 2012, the Commission charged Elia with securities fraud.
According to the Commission's complaint against Ellis, Ellis persuaded prospective investors by falsely telling them that he had personally invested with Elia at least USD5m that he had inherited from his parents. Ellis variously told investors that he earned 16 per cent to 20 per cent annual returns on his investment with Elia or that he earned USD20,000 to USD24,000 per month. Elia and his entities did in fact pay Ellis over USD2.1m over seven years.
However, those payments were not investment returns because, as Ellis knew, he had not made an investment with Elia that would have returned such large sums of money. According to the complaint, Ellis also reassured prospective investors of the safety of the investment by falsely telling them that he had tested Elia by depositing a large amount of money with Elia, then asking for and receiving it back.
According to the complaint, Ellis bolstered his deceptive claims about the success of his investment with Elia with ostentatious displays of wealth, including expensive real estate, luxury cars, jewellery, opulent entertaining of his friends, and expensive cruises. Though Ellis claimed that his investments with Elia made his luxurious lifestyle possible, he failed to disclose to investors that his wealth derived not from legitimate investment returns but from the money that Elia paid him for fraudulently touting Elia's investment vehicles.
The Commission is seeking permanent injunctions against Ellis, disgorgement of ill-gotten gains plus pre-judgment interest, and civil penalties.
Separately, the US Attorney's Office for the Southern District of Florida today announced criminal charges against Ellis for his conduct in the scheme.