Among recent enforcement actions by the SEC were charges against an Indiana resident and his company engaged in a Ponzi scheme targeting retirement savings and a stop order against the initial public offering of a Los Angeles company that had issued a registration statement filled with false and misleading information. In addition, a former JPMorgan Chase employee involved in the "London Whale" case was arrested in Spain after turning himself in.
SEC Halts Retirement Savings Ponzi Scheme
After halting his operations with a temporary restraining order and an asset freeze, the SEC charged John Marcum, a Noblesville, Ind., resident, and his company, Guaranty Reserves Trust, with defrauding investors after he diverted their retirement funds to pay for his own lavish lifestyle and foot the bill for startup companies.
When the scheme ran dry, Marcum offered to repay three of his clients by making them beneficiaries on life insurance policies and then killing himself, the SEC said.
Marcum represented himself as a successful trader and asset manager, and brought in more than $6 million through promissory notes issued by his company. Beginning in 2010, Marcum helped investors set up self-directed IRA accounts, promising them hefty returns on the promissory notes by day-trading in stocks while guaranteeing the safety of their principal investment.
Investors surrendered control of their assets to Marcum, either by rolling their existing IRA accounts into the new self-directed IRA accounts or by transferring their taxable assets directly to brokerage accounts that he controlled. Then he and certain investors cosigned the promissory notes, and Marcum placed the signed notes in the IRA accounts.
He didn't actually do much trading, which was a good thing since he nearly always lost money when he did—to the tune of more than $900,000. Instead of doing more trading, he used some of the money as collateral for a $3 million line of credit at the brokerage firm where he used to work. He took numerous advances from the line of credit to fund such startup ventures as a bridal store, a bounty hunter reality television show, and a soul food restaurant owned and operated by the bounty hunters—none of which ventures appear to be making a profit.
Not only were Marcum's investors unaware that they were paying for these ventures—as well as nearly $1.4 million in payments made directly to the startup ventures and other companies and more than a half a million for Marcum's personal expenses on his credit card that included airline tickets, luxury car payments, hotel stays, sports and event tickets, and tabs at a Hollywood nightclub—but they were equally deceived as to the rate of return Marcum promised them. After promising annual returns of 10%–20%, he issued false statements showing annual returns that topped 20%. He also "guaranteed" the safety of their principal.
The whole scheme started to collapse when he did not have the funds needed to honor investor redemption requests. His "recovery plan" — which he actually provided to some of his investors — consisted at first of bringing in new clients with more money so that he could pay the old clients.
When he finally admitted to three of those old clients that he'd used their money, and that of others, for his own purposes, he tried to sell them on giving him more time. If he failed to bring in enough to pay them off, he said, he would name them as beneficiaries on life insurance policies and, after the purported two-year "suicide clause" on the policies was satisfied, would repay their funds by killing himself so that they could collect.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains and financial penalties from Marcum and Guaranty Reserves Trust, and disgorgement of ill-gotten gains from Marcum Companies LLC, which is named as a relief defendant.
IPO Stalled with Stop Order from SEC
