The retail investor focus of SEC Enforcement continued this week. First there was an action based on a microcap fraud. Then a case involving the so-called “blockchain evangelist” and crypto currency fraud and then a touting proceeding involving a microcap stock. The most recent case by the agency centers on a registered representative who used his long established client relationships to create a mini-Ponzi scheme, fleecing those who trusted him while lining his own pockets at their expense. SEC v. Pagartanis, Civil Action No. 2:18-cv-03250 (E.D.N.Y. Filed May 30, 2018).
Defendant Steven Pagartanis has been a registered representative at various Commission registered broker-dealers for almost thirty years. Recently he has been associated with Lombard Securities, Inc. at its Setauket, New York branch office. Over the years the registered representative developed relationships of trust and confidence with his clients. The complaint does not indicate that Mr. Pagartanis has had any regulatory violations over the years.
Over a five year period beginning in 2013, Mr. Pagartanis solicited and obtained a total of $8 million from nine retail investors who were long standing clients. Some investors were told that the investment was to acquire common stock of Genesis Land Development Company. That firm was supposedly a Canadian land development home building company whose shares were listed on the TSX. Others were told that their funds were for an investment in a land development company. Investors were told that they would receive returns of 4.5% to 8% annually. Some investors were told the investment was similar to a bond fund or a fixed income fund.
The investments were paid with checks made payable to Genesis. That is the same name as the Canadian development firm. It is also the name of Genesis I Holdings, LLC, a limited liability company based in East Setauket, New York. Mr. Pagartanis is the sole principal and owner of the firm.
None of the investor money was ever invested, according to the complaint. To the contrary, Defendant transferred the investor capital to his personal bank account. About $1.8 million was used to make monthly payments back to the investors. Mr. Pagartanis also made withdrawals from the Genesis bank account.
In early 2018 Defendant stopped making payments to the investors. Requests to reinstitute the payments or for a return of the investment were ignored. By March 2018 Lombard’s compliance staff had received investor complaints and requested that Mr. Pagartanis speak with them. The request was ignored. He also ignored request for an interview from FINRA made the same month. In April 2018 the regulator barred him from associating with any FINRA member. The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.
The Suffolk County District Attorney’s Office filed criminal charges against Mr. Pagartanis.