Commission Continues to Focus on Ponzi Schemes

Ponzi schemes seem to be the key point of interest for the Commission’s enforcement program recently. Many of the cases being filed are Ponzi schemes or at least a variation of one. While it is important to bring cases where investors have been fleeced by fraudulent conduct,  there can be no doubt that day in and day out there is no shortage of matters involving Ponzi schemes and  other violations of the securities laws such as insider trading or the numerous other type of fraudulent conduct typically prosecuted by the agency.  Nevertheless, earlier this week the agency settled another Ponzi scheme action, SEC v. Kimbrough, Civil Action No. 4:22-cv-00558 (E.D. Tex.).

Named as defendants in the action are:  Justin R. Kimbrough and Prosperity Consultants, LLC.  The complaint alleges that over a period of several months, beginning in June 2020, the pair  raised at least $3 million from 31 investors. Investors were told that the funds being raised were to finance a real estate wholesale business and to purchase medical products for resale by the company in India. To the contrary, however, about $1.75 million of the funds were used to pay Defendants and provide a kind of dividend to existing investor of about $1.05 million.

Defendants settled the matter with the Commission, consenting to the entry of permanent injunctions based on Securities Act Section 17(a)(1) & (3) and Exchange Act Section 10(b) and Rule 10(b) – 5(1) and (3). The final judgement as to Mr. Kimbrough also imposed an officer/director bar and a conduct-based injunction that prohibits him from participating in the issuance, purchase or sale of any security other than for his own account.  The final judgements as to each defendant requires the payment on a joint and several basis, of disgorgement in the amount of $1,137,437.45 plus prejudgment interest of $86,882.82. The amounts are deemed paid by the forfeiture  paid by Mr. Kimbrough in the parallel criminal proceeding in the amount of $2,560,938.87.   See  Lit. Rel. No. 26402 (Sept. 17, 2025).