A Warning for Investors
Offering frauds and Ponzi schemes mixed with a few misappropriation cases have become the staples of SEC enforcement. The cases and schemes on which frauds are built range from the simple investment scheme in which shares of a company are supposedly sold to raise operating capital for what may or may not be a legitimate business to esoteric schemes based on what are supposedly visionary schemes that will be unveiled in the future. One action filed this week sought to take advantage of the interest in IPOs, offering pre-IPO shares in what were claimed to be unicorns. SEC .v Quartararo, Civil Action No. 21-cv-02305 (E.D.N.Y. Filed April 27, 2021). A second centers on a Ponzi scheme. SEC v. Harbor City Capital-Corp.,, Civil Action No. 6:21-cv-694 (M.D. Fla. Filed April 20, 2021).
Quartararo is an action which names as a defendant Peter Quartararo who was previously barred from associating with any broker/dealer by FINRA. Mr. Quartararo began soliciting investors in mid-2019 to purchase shares in well known unicorns. Investors were told that they could acquire pre-IPO shares in firms such as Peloton Interactive, Inc and Airbnb, Inc.
Over a period of several months at least four investors invested about $436,000 in what they believed were pre-IPO shares. Investors were told to make out their checks for the investment to Leonard Quartararo, the barred broker’s father, or Private Equity Solutions. That firm was owned by Paul Casella, who had also worked in the securities industry and been barred by FINRA. In addition, he had been convicted on federal racketeering charges for human trafficking.
The pre-IPO shares never existed. Defendant made a series of payments to his girlfriend and family. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25083 (April 27, 2021).
Harbor City Capital is based on a Ponzi scheme. The defendants include the firm and a series of related entities and Johnathan P. Maroney, the CEO of the firm and the related entities. In 2020 the Alabama Securities Commission issued a cease-and-desist order prohibiting Mr. Maroney from selling securities in the state.
Since at least 2015 Mr. Maroney has have been selling either promissory notes or bonds tied to his entities. The notes or bonds were supposed to pay 1% to 5% per month to the holders. The funds were supposedly for “lead generation.” Investors were not told of Mr. Maroney’s regulatory history. The solicitations yielded over $17.1 million. Much of the investor capital was misappropriated. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 2502 (April 27, 2021).
These cases are typical of the dozens of offering fraud actions the Commission has brought in recent months. While the Commission filed Harbor City while the scheme was on-going and the Court set a hearing on a preliminary injunction, in probability much of the investor capital in that case, as well as the first is, gone.
The Commission will in probability end the securities business activities of the Defendants in each case. Yet a little due diligence by potential investors in each instance would have uncovered the background of those stealing their money, halting the fraudulent schemes much earlier and saving their investments. Each case should serve as a warning to investors looking to place their money in good securities.