Unregistered Advisor Charged With Bilking Private Equity Investors: Enforcement

Commonwealth Secretary William F. Galvin, Massachusetts' top securities regulator, charged Raymond K. Montoya of Allston with defrauding investors out of millions of dollars over the past decade.

"Montoya has used this money for his own personal benefit and that of his immediate family, to trade with limited success, and to make Ponzi-like payments to other investors," the administrative complaint stated.

In the past three years, his RMA Fund has taken in more than $30 million, but less than $16 million was ever transferred to any brokerage account.

RMA claimed its net asset value exceeded $3.9 billion in 2011 and $5 billion in 2015. It made assertions to investors that it generated positive returns over 10 years outperforming the S&P by 134%. It stated that its assets were traded in brokerage accounts held with JPMorgan and later testified that it had $20 million in accounts at E*Trade. The complaint alleges that these were all false statements.

"This egregious fraud by an unregistered individual should serve as a warning to investors to have caution when investing and to not be enticed by get-rich opportunities," Galvin said in a statement. "And inflated statements of investment returns should be an immediate red flag."

Also named in the complaint were Research Magnate Advisors and Resource Managed Assets, both Delaware limited liability companies formed by Montoya, sharing a Boston office.

"For the past three years, Montoya and his associated entities have relied on an exemption from registration that all but removed them from regulatory oversight," the complaint charged. "In that time Montoya has enticed investors with misleading materials and inflated rates of return in order to perpetrate his fraudulent scheme in violation of the Massachusetts Uniform Securities Act."

In the past three months alone, Montoya has taken in more than $1.8 million of investors' money, the complaint notes. According to the complaint, Montoya used investor money "as a personal slush fund" to pay off his son's mortgage of more than $1 million, and to make $1.3 million in personal payouts and salaries to family members "for vaguely defined services."

The complaint calls for an immediate cease and desist order against the respondents, as well as barring them from the securities business in the state. They would be required to disgorge all profits and remuneration from their alleged wrongdoing and to pay a fine.

Advisor to Pay $1.7 Million for Overcharging Clients, Stealing Assets

Marc D. Broidy and Broidy Wealth Advisors LLC were ordered to pay over $1.7 million for defrauding clients and stealing assets, according to the final consent judgment.

Judge Eric N. Vitaliano of the U.S. District Court for the Eastern District of New York entered a final consent judgment against Broidy and BWA, enjoining them from violating antifraud provisions of the federal securities law and ordering them, jointly and severally, to pay $1.7 million in disgorgement.

The disgorgement was partially satisfied by Broidy's payment of $25,000 directly to a former client, and the balance deemed satisfied by the entry of an order of restitution in the parallel criminal matter, United States v. Marc Broidy.

Additionally, the Securities and Exchange Commission barred Broidy from the securities industry.

The SEC charged Broidy and BWA with fraudulently overbilling clients and stealing assets from their trusts to pay such personal expenses as his home mortgage, overseas trips and leases on two Mercedes-Benz vehicles.

The SEC alleged that Broidy billed clients approximately $643,000 in excess fees and covered it up by altering the amount of management fees recorded on forms issued by brokerage firms before sending the forms to his clients. According to the SEC, Broidy fraudulently obtained additional funds to pay his personal expenses by misappropriating approximately $865,000 in assets from clients' trusts for which he was trustee, and that Broidy also defrauded advisory clients about some investments they made in privately held companies when he did not inform them he was affiliated with those companies.

SEC Obtains Final Judgment Against Two Bitcoin Mining Companies

The U.S. District Court for the District of Connecticut entered a final default judgment against two Connecticut-based companies, GAW Miners LLC and ZenMiner LLC, in a case alleging that these companies and their principal conducted a Ponzi scheme that used the lure of quick riches from virtual currency to defraud investors.

The final judgment against GAW Miners and ZenMiner orders each of them to pay, jointly and severally, nearly $10.4 million in disgorgement and prejudgment interest. The final judgment also requires each entity to pay a civil penalty of $1 million.

The SEC's complaint, filed on Dec. 1, 2015, alleged that GAW Miners and ZenMiner, along with their principal, Homero Joshua Garza, purported to offer shares to investors in their digital bitcoin mining operation.

According to the SEC's complaint, GAW Miners and ZenMiner did not own enough computing power for the mining they promised to conduct, so most investors paid for a share of computing power that never existed. Returns allegedly paid to some investors came from proceeds generated from sales to other investors.

Both GAW Miners and ZenMiner have ceased their former business operations. The SEC's litigation continues against Garza.

SEC Charges Owner of Consulting Company in Louisiana With Insider Trading

The SEC announced fraud charges against Michael Trahan for insider trading in the securities of The Shaw Group Inc., a Louisiana-based energy construction company, ahead of a public announcement that Shaw was going to be acquired by Chicago Bridge & Iron Co.

The SEC's complaint alleges that during July 2012, while Trahan was a consultant to Shaw, a Shaw employee told Trahan about the impending Shaw merger. According to the SEC, Trahan's company, Petra Consultants Inc., was bound by an agreement with Shaw that required Petra and Trahan to keep information received from Shaw confidential and not to use such information for any purpose except in the context of the consulting arrangement.

The same day the Shaw employee told Trahan about the impending merger, Trahan bought 5,600 shares of Shaw common stock, the SEC says. The SEC alleges that this purchase represented approximately 86% of the cash in Trahan's account and approximately 73% of the total account value. The SEC further alleges that Trahan sold the stock shortly after the announcement of the acquisition for a profit of $69,735.

Trahan has consented, without admitting or denying the allegations in the SEC's complaint, to the entry of a final judgment imposing a permanent injunction and ordering Trahan to pay disgorgement of $69,735, prejudgment interest of $10,957, and a civil penalty of $69,735. The settlement is subject to court approval.

SEC Charges CEO and Issuer with Using a Rigged Transaction to Improve Financials

The SEC charged a CEO with perpetrating a fraudulent scheme to create the false appearance of improvement in the financial statements of two publicly traded companies by removing significant liabilities.

The SEC's complaint alleges that beginning in 2012, David N. Fuselier – then chairman, CEO and principal financial and accounting officer of Integrated Freight Corp. and New Leaf Brands Inc. – arranged for both companies purportedly to sell nonperforming subsidiaries each with liabilities greater than assets.

According to the complaint, Fuselier persuaded a longtime friend and business associate, Roy W. Erwin, to be in charge of the purchaser, a new company formed and controlled by Fuselier that had no assets. Fuselier hid the true nature of the transactions from the companies' auditors and, from July 2012 to April 2015, reviewed, approved and signed SEC filings containing false and misleading information about the related-party nature of the sales and the issuers' financial condition. As a result, Integrated Freight and New Leaf filed with the SEC materially false and misleading reports.

Erwin has agreed to settle the SEC's charges by accepting a three-year officer and director bar and a penny stock bar, and by paying a $25,000 penalty. The settlement is subject to court approval.

The SEC also issued an order temporarily suspending trading in Integrated Freight's common stock and instituted administrative proceedings to determine whether it is necessary and appropriate for the protection of investors to suspend or revoke Integrated Freight's SEC-registered securities.

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