Two More Investment Fraud Cases — Different Schemes, Same Result
Recently, the SEC has brought what seems to be an almost endless series of investment fund cases, many of which are Ponzi schemes. Most of the cases have a common theme of inducing investors to part with their hard earned cash with tales of a proprietary investment strategy that is safe, conservative and has virtually guaranteed returns not obtainable elsewhere. Of course, the investment is a fraud and the investors lose their cash, or at least most of it.
At the end of last week, the SEC filed two more investor cases. These are a variation on the standard themes, however. Unfortunately the end result for investors is probably the same.
In SEC v. Aura Financial Services, Inc., Case No. 09-21592 (S.D. Fla. Filed June 11, 2009), the Commission filed an action against an Alabama company and six individuals who served as registered representatives. According to the SEC, from about October 2005 through April 2009, defendants induced customers to open brokerage accounts at Aura Financial. The registered representatives then churned the accounts, took excessive mark-ups and executed unauthorized trades repeatedly. During 2008 fifteen customers who were victims of the alleged fraud had losses of over $3.5 million in their accounts — no profits for the investors, only the defendants. Trading losses still generate commissions and these defendants charged over $1million. The SEC’s complaint, which charges violations of Sections 17(a) and 10(b), is in litigation. See also Lit. Release No. 21081.
SEC v. ZNext Mining Corporation, Inc., Civil Action No. CV 09-2611 (N.D. Cal. Filed June 12, 2009) is still another variation but of an old theme — shares in a gold mine. The Commission’s action alleges fraud in violation of Section 10(b) and the sale of unregistered securities in violation of Section 5 by defendants ZNext Mining and its principal, Elvira Gamboa.
According to the SEC, over a four year period Ms. Gamboa promoted the sale of stock in ZNext by distributing false and misleading press releases suggesting that it owned and operated a gold mine in the Philippines. From 2006 to 2008 the company sold at least 1.9 million shares of stock to a promoter. Other shares were sold through the company’s investor relations officer. In fact, the company was an empty shell — no gold for the investors, only Ms. Gamboa. Overall, she made at least $1 million from the sale of the shares, according to the SEC. This case is also in litigation. See also Lit. Release No. 21084.