Fraudulent “Social Security Maximization” Scheme Ends With Guilty Plea

P.T. Barnum should have said “there is a new scheme born every minute.” Yesterday a Wall Street office and Sinatra songs were used to lure would-be investors to a commodity fraudster who took investor funds for his own and ended in jail. Today, “social security maximization” seminars were used by a registered investment adviser to attract investors looking at retirement. Different day; different scheme; same end – fraudster pleads guilty while the investors lose their hard earned savings. U.S. v. Hudspeth, No. 2:17-cr-122 (E.D. Va.).

Roger Hudspeth and his firm, Dominion Investment Advisors, LLC, were Virginia state registered investment advisers. Mr. Hudspeth and his firm held social security maximization seminars, seeking clients who were approaching retirement. Those who attended were directed to purchase securities that were part of offerings created by Mr. Hudspeth’s associate. The associate had been banned from the securities business by FINRA for fraudulent dealings.

Rather than being safe, conservative investments, the securities from the offerings were unregistered, illiquid and at best highly speculative. Nevertheless, Mr. Hudspeth used a series of misrepresentations to convince potential investors that the investments had merit. Over $6 million was raised from investors. Mr. Hudspeth received about $700,000 for his efforts.

Early in 2016 the Virginia State Corporation Commission entered a judgment order against Mr. Hudspeth, revoking his licenses. His firm was permanently closed. Mr. Hudspeth was prohibited from engaging in any investment advisory activities in the future.

Yesterday Mr. Hudspeth pleaded guilty to one count of investment adviser fraud and one count of conducting unlawful monetary transactions. Sentencing is scheduled for January 22, 2018.

Programs

Seminar: Annual Private Funds Symposium, Chair, Genna Garver, Dorsey & Whitney LLC, September 27, 2017, New York, New York, here

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A Video Plus a Sinatra Song Attracted Investors for Fraudster

A Wall Street office; a youtube.com video; Frank Sinatra singing New York New York. These were the keys to building an apparently successful commodity trading business that attracted clients – at least for a while. It ended, however, with a prison term. U.S. v. Jaramillo, No. 1:17-cr-0004 (S.D.N.Y.).

Pedro Jaramillo is a Peruvian national residing in Manhattan. Over a two year period beginning in early 2014 he raised about $1.2 million from over two dozen investors for trading in commodities. To attract investors Mr. Jaramillo obtained an office on Wall Street; he created a youtube.com video on which he featured his sales pitch. The background music was Frank Sinatra singing New York New York. A prominent Global Investment bank was used as a reference.

In meetings with clients at the Wall Street office Mr. Jaramillo promised potential investors that he would be a “trusted partner” who would establish an individual account for each person. That account would be individually managed and was federally insured. His proven track record assured success. These safeguards also protected clients against fraud and failure, according to Mr. Jaramillo.

While the glitz and sales pitch attracted investors, it did not protect them. No individual accounts were established. Much of the investor money was diverted to the personal use of Mr. Jaramillo. Other portions were used to repay prior clients.

Mr. Jaramillo pleaded guilty to charges of commodity fraud and wire fraud. The court sentenced him to serve twelve years in prison followed by three years of supervised release. In addition, the court ordered him to forfeit the proceeds of the scheme and to pay restitution in an amount to be determined.

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