THE COMMISSION CONTINUES TO FOCUS ON PONZI SCHEMES
The Inspector General’s report on the repeated failures to halt the Stanford schemes notes in part that there was a perception on the part of some enforcement staff that there was little interest in bringing Ponzi scheme cases. This rationale is apparently part of the reason the enforcement staff declined on repeated occasions to investigate claims that Stanford was operating a Ponzi scheme.
Times have changed. Now, hardly a week goes by that the Commission does not bring at least one if not several Ponzi scheme cases. This week an action was brought against Matthew John Ryan, a financial professional, alleging he is operating a Ponzi scheme through American Integrity targeting senior citizens. SEC v. Ryan, Civil Action No. 1:10-cv-00513 (N.D.N.Y. Filed May 3, 2010). According to the complaint, Mr. Ryan and his controlled vehicle, Prime Rate and Return, LLC, have raised over $6.5 million from investors since 2002. A series of false statements were used to lure investors to place their money with American Integrity, a company which is nothing more than a bank account. Investors were guaranteed a fixed return ranging from 3.85% to 9% annually and were sent periodic statements.
Key misrepresentations made to attract investors included:
• A claim that American Integrity was a substantial Manhattan-based business when it fact it was nothing but a checking account.
• The creation of fictitious employees who sent communications to investors.
• Claims about other investment products of the firm when in fact there were no products.
• Representations that investments were insured when in fact they were not.
• Claims on the firm website that it carefully evaluated investments when in fact it had no investments.
• False claims that American Integrity was qualified to serve as a custodian for IRAs and IRA rollovers.
In fact, according to the complaint, investor funds were diverted to either make necessary payments to other investors or Mr. Ryan’s personal use.
The SEC’s complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The court granted the Commission’s request for a TRO and a freeze order. The case is in litigation. See also Litig. Rel. 21511 (May 4, 2010).