The Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a $25 million Ponzi scheme falsely promising high annual returns with minimal to no risk to investors in the Vietnamese community of Orange County, California.
The SEC alleges in its complaint that Kent R.E. Whitney founded The Church for the Healthy Self three months after being released from federal prison for orchestrating a prior investment scheme involving commodities.
Undeterred by prison, Whitney established a church to defraud more investors after he was released in 2014, according to the SEC. Shortly thereafter, he became an ordained minister through an online program. A month later, he formed The Church for the Healthy Self, purportedly as a nonprofit, religious organization.
The church's websites provide the facade of a "virtual church." For example, they provide links to YouTube channels offering religious videos and online prayer request forms. But The Church for the Healthy Self does not hold religious services typically associated with churches. The primary mission of the church appears to be obtaining investor funds, according to the SEC.
According to the SEC, the Church for the Healthy Self's investment program, CHS Trust, promised investors tax-deductible, guaranteed and insured returns of at least 12%, through reinsurance investments and options trading.
David Lee Parrish, who assisted Whitney's earlier fraud, joined his friend as a co-pastor of The Church for the Healthy Self and as the purported director of CHS Trust.
Whitney and Parrish primarily targeted Vietnamese investors through extensive radio and television advertisements touting CHS Trust. One such CHS television commercial, in Vietnamese with English subtitles, stated: "Hello, I would like to introduce you to an investment program earning 12% interest from CHS Trust. Safe, effective, and insured by FDIC and SIPC. CHS Trust investment program gives you higher interest than 401(k) or IRA with maximum tax benefits. Register for a free seminar to learn about the 12% interest rate program at CHS Trust every Wednesday at 6 p.m."
Instead of generating the promised guaranteed profits, Whitney and Parrish stole millions of dollars of investor funds and paid returns through Ponzi payments. According to the SEC, the pair used investor funds to pay credit card bills, student loan bills, title and mortgage companies, jewelers, and a home staging and interior design firm.
Earlier this month, the FBI obtained a criminal seizure of the funds in CHS Trust's main account, citing potential violations of federal wire fraud and money laundering statutes as the predicate for the seizure. Despite the FBI seizure, Whitney and Parrish continued to solicit investors.
The SEC is seeking permanent injunctions, disgorgement and civil penalties against the defendants.
Unregistered Investment Advisor Stole Millions From Investors: SEC
The SEC charged a Long Beach, California-based investment advisor with stealing millions of dollars from investors to perpetrate a decades-long Ponzi scheme.
The SEC alleges that Carol Ann Pedersen, a former CPA and unregistered investment advisor, raised at least $29 million from 25 investors from 1991 until 2017 and falsely promised to invest their money in securities.
Pedersen told prospective investors that she would place their money in "federally guaranteed" securities with returns typically greater than 8%. Pedersen also solicited investments in the C.A. Pedersen Client Investment Pool, a limited partnership managed by Pedersen that she claimed owned a large and diverse stock portfolio.
According to the complaint, rather than make the promised investments, Pedersen used about $25.6 million to make Ponzi-style payments to investors, and the remaining funds to pay for personal expenses including car payments and home renovation costs.
To conceal her scheme, Pedersen provided investors with fabricated account statements that falsely represented that their money had been invested and was earning a return. Pedersen's scheme fell apart in 2017 when she began to experience chronic cash flow problems and investors sued her.
In a separate action, the U.S. Attorney's Office for the Central District of California announced criminal charges arising from the same conduct.
Pedersen has agreed to the entry of a final judgment in which she consents to injunctive relief and to be liable for approximately $2.7 million in disgorgement and interest, which will be deemed satisfied by the anticipated entry of a restitution order against her in the criminal action.
The final judgment also does not order a penalty against Pedersen in light of her anticipated guilty plea and conviction.
Court Fines Wells Fargo Securities Over Video Game Bond Offering
A federal court ordered Wells Fargo Securities to pay more than $800,000 in civil penalties for disclosure failures associated with a municipal bond offering it underwrote to finance a startup video game company, 38 Studios.
The Securities and Exchange Commission charged Wells Fargo, which served as the placement agent for the 38 Studios bond offering, in 2016. The SEC's complaint alleged that Wells Fargo failed to disclose that the project being financed by the bonds — the development of a video game — could not be completed with the financing the bonds would provide.
The SEC also alleged that the defendants did not disclose that even with the proceeds of the loan financed by the bonds, 38 Studios faced a known shortfall in funding.
