Thursday, February 21, 2013

SEC Charges Virgin Islands-Based Investment Adviser with Defrauding Clients

The SEC charged an investment adviser located in the U.S. Virgin Islands with defrauding clients from whom he withheld the fact that he was receiving kickbacks for investing their money in thinly-traded companies. When he faced pressure to pay clients their returns on those investments, he allegedly used money from other clients in a Ponzi-like fashion to make payments.

The SEC’s Enforcement Division alleges that the investment adviser  through his St. Thomas-based firm TAG Virgin Islands, routinely used his discretionary authority over the accounts of his clients to purchase promissory notes issued by particular private companies. In exchange for financing those companies, TAG received millions of dollars in cash and other compensation — a conflict of interest that was never disclosed to investors. The Enforcement Division further alleges that when the promissory notes neared or passed maturity and his clients demanded payment, the investment adviser misused assets of other clients to meet those demands.

“[The investment adviser  was anything but forthcoming with his clients and he repeatedly failed to act in their best interests,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “He didn’t tell them about the compensation he received from the companies they were financing, and then compounded his fraud by using client assets to pay other clients when the conflicted investments came due.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against the investment adviser.

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