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.
For more details, visit SEC Charges Virgin Islands-Based Investment Adviser with Defrauding Clients.
