Another Investment Advisor Ponzi Scheme
In the wake of the Madoff scandal the SEC is taking out other fraudulent investment advisory firms. The release below details a south Florida investment advisor who perpetrated a multi-million dollar ponzi scheme. As we noted in Lessons in Hedge Fund Due Diligence, it is so important for investors to conduct proper due diligence on their investment advisors or hedge fund managers.
If you have any questions on hedge fund or investment advisor due diligence, please contact us. Other related hedge fund law articles include:
- Hedge Fund Due Diligence
- Hedge Fund Due Diligence 2.0
- Affinity Fraud Alert
- Hedge Fund Managers
- Important Information for Registered Investment Advisors
The following release can be found here.
South Florida Investment Adviser Indicted for Multi-Million Dollar Misappropriation and Ponzi Scheme
On Dec. 23, 2003, the United States Attorney for the Eastern District of Michigan filed criminal charges against Anthony A. James, a South Florida investment adviser. The indictment charges James with two counts of mail fraud in connection with a multi-million dollar misappropriation and Ponzi scheme. According to the indictment, between April 2001 and January 2008, James used his position as owner of James Asset Advisory, LLC (James Asset) to receive over $5.3 million from over 40 clients. Those funds were supposed to be invested in various securities, bonds, and funds. Instead of investing those funds, James used approximately $2.4 million of investor money for his own personal use and approximately $2.8 million of investor money to pay back other prior investors.
In September 2008, the Commission filed a civil injunctive action in the United States District Court for the Southern District of Florida against James and James Asset, for misappropriating client funds and operating a Ponzi scheme. The Commission’s complaint alleged that the Defendants received at least $5.2 million from 44 clients who were told by the Defendants that client monies would be invested in stocks, bonds, and mutual funds. According to the complaint, the Defendants never invested any client funds in the stock market or other investments. Instead, James misappropriated at least $2.4 million in client monies to fund his lavish lifestyle, including the purchase of a six-bedroom, 5,000 square foot home, a luxury condominium, a Porsche sports car, and season tickets to the Miami Heat games. Moreover, like a classic Ponzi scheme, the Defendants transferred approximately $2.8 million from new clients to existing clients to repay principal or to create the illusion of profitable trading. In addition, to facilitate and otherwise conceal their fraud, the complaint alleged that the Defendants provided clients with false account statements reflecting securities holdings and returns that did not exist. On Sept. 25, 2008, the Court entered an order, by consent, permanently enjoining James and James Asset from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The judgment also ordered the Defendants to pay disgorgement and civil money penalties, the amounts of which will be determined at a later date. [U.S. v. Anthony A. James¸ (United States District Court for the Eastern District of Michigan, Case No. 2:08-CR-20674)] (LR-20842)