Attorney Charged with Ponzi Scheme that Defrauded Clients, Family and Friends

December 14th, 2014
in econ_news

from the Securities and Exchange Commission

The Securities and Exchange Commission today charged a Manhattan-based attorney with conducting a Ponzi scheme that defrauded some of his legal clients as well as close family members and friends.

Follow up:

The SEC alleges that Charles A. Bennett raised approximately $5 million by selling purported investments in what he described as a pool of funds that invested in joint ventures with a Wyoming-based investment fund to which he claimed to have a close connection. Bennett told investors their money would largely be used to fund investments in European real estate mortgage-backed securities yielding lucrative rates of return ranging anywhere from 6 to 25 percent over short periods of time. He stated that prominent individuals including a former governor of New York were participating in these investment ventures.

However, the SEC alleges that Bennett’s story was a sham. While the fund does exist and Bennett is an acquaintance of the fund’s principal, he had no connection to the fund nor did he invest in any joint ventures associated with the fund or prominent individuals. In fact, he made no investments at all, instead secretly misappropriating all of the money he raised from investors. Bennett used funds from newer investors to pay redemptions and make phony “interest” payments to earlier investors, and he siphoned away investor money to support his own lifestyle that included vacations, expensive hotels, and substantial cash withdrawals.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Bennett. Said Andrew M. Calamari, Director of the SEC’s New York Regional Office:

Bennett falsely portrayed that he was closely associated with a Wyoming-based fund and would provide substantial rates of return to investors, but he was simply keeping the cash for himself and using it to perpetuate his Ponzi scheme.

According to the SEC’s complaint filed in federal court in Manhattan, Bennett sent phony documents to investors in order to make the investments appear legitimate. He falsely claimed them to be account statements issued by the Wyoming-based fund. By mid-2014, Bennett’s scheme began to collapse as investors’ demands for the return of their principal outpaced his ability to obtain new funds. Last month, Bennett composed a lengthy handwritten note admitting to his fraudulent conduct and left it in a Manhattan hotel room. He then jumped into the Hudson River and was later rescued.

The SEC’s complaint charges Bennett with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and with selling securities for which no registration statement is active or on file with the SEC. The complaint seeks among other things permanent injunctive relief, disgorgement of ill-gotten gains, and financial penalties.

The SEC’s investigation, which is continuing, is being conducted by Jorge G. Tenreiro and Lara S. Mehraban of the New York Regional Office. The case is being supervised by Amelia A. Cottrell, and Richard G. Primoff and Mr. Tenreiro are leading the SEC’s litigation. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

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