SEC Halts Fraudulent Farm Loan Investment Program
The Commission initiated an action centered on the misuse of offering proceeds tied to farm loans. The defendants include an investment adviser, a financial planner and an attorney. SEC v. Veros Partners, Inc., Civil Action No. 14-cv-659 (S.D. Ind. Filed April 22, 2015). The Court entered a temporary asset freeze at the request of the SEC at the time the complaint was filed.
The complaint alleges that at least $15 million was raised from over 80 investors in a series of offerings in 2013 and 2014. The defendants in the action include: Veros Partners, Inc., a registered investment adviser; Matthew Haab, an accountant and financial planner who founded Veros, continues to own a significant percentage of the firm and serves as its President, Treasurer and a director; Tobin Senefeld, the CEO and a registered representative at Pin Financial LLC who previously settled a Commission free riding case; Veros Farm Loan Holding LLC, the issuer for the 2013 offering; FarmGrowCap LLC, the issuer for the 2014 offering; and PinCap LLC, the issuer for the 2014 Bridge Loan offering.
Veros has about 300 advisory clients. Matthew Haab manages the advisory business. He also manages accounts for over 175 Veros clients. Generally, Veros has complete discretion over the investments of advisory clients.
In 2012 Veros began offering farm operating loans. Those loans were extended to farmers to pay for seed, fertilizer, equipment and related expenses for a particular cop cycle. The offerings were intended to fund twelve to fourteen month operating loans for farmers during a particular crops season. They were to be repaid at the end of the season.
In the 2012 offering about $4.8 million was raised from 59 investors. Those investors were told that the offering proceeds would be used to fund farm loans for the crop season. Investors would be paid 12% interest and be repaid at the end of the season. Most of the investors were Veros clients. Mr. Senefeld negotiated the terms of the loans with the farms. Mr. Risinger prepared the offering materials. Each was paid a fee. Veros received an administrative fee. By the end of the season the underlying farm loans were not repaid in full nor were investors.
For the 2013 crop season the process was essentially repeated. Mr. Haab told prospective investors that a number of operating loans would be funded from the offering that year. He recommended the interests in the offering as a replacement for fixed-income securities like corporate bonds. Investors were told that the only fees would be the Versos annual management fee and a consulting and administrative fee. They were not told that portions of the offering proceeds would be used to repay investors from the 2012 offering or to pay off or refinance any farm loans. They were also not told about certain fees paid to PinCap and Messrs. Risinger and Senefeld.
When the 2013 offering matured investors were entitled to receive about $10.8 million. That sum included $9.7 in principal and 10% annual interest. While investors were repeatedly told that they would be repaid in full they were not. Some of the underlying loans were not repaid.
Two additional offerings were made with similar results. In February 2014 Mr. Haab solicited certain Veros clients to invest in a “bridge loan” offering. This was a two month offering in advance of the 2014 crop season offering. About $5.2 million was raised from 24 investors. All of the underlying loans were not repaid. Some investors were repaid while others were convinced to roll their interests into the next offering.
For the 2014 season another offering was made. This offering was similar to the 2013 solicitation. About $3.5 million was raised from 35 investors. As in 2013 portions of the offering proceeds were used to repay investors from the prior offerings, although this fact was not disclosed to investors. As with earlier offerings investors were not told that a number of the underlying farm loans were not repaid in accord with their terms. As with earlier loans there were insufficient funds to repay investors. Messrs. Haab, Risinger and Senefeld advised the Commission that their only recourse to repay investors is by fees from expected or planned offerings, including at least two in 2015 that were expected to raise about $25 million from solicitations to Veros clients.
The complaint alleges violations of Exchange Act Section 10(b), each subsection of Securities Act Section 17(a) and Advisers Act Sections 206(1), 206(2) and 206(4). The complaint is pending. See Lit. Rel. No. 23246 (April 24, 2015).