SEC files action to halt $25 million Ponzi scheme | AccountingWEB

SEC files action to halt $25 million Ponzi scheme

Continuing its crackdown on financial fraud against senior citizens, the Securities and Exchange Commission has filed an emergency action to shut down a $25 million Ponzi scheme that victimized hundreds of senior and other investors nationwide who bought fractional ownership interests in life insurance policies.

The SEC asked a federal district court in Sacramento, CA, to grant the SEC's request for an order temporarily prohibiting further sales of the products, freezing the assets, and appointing a receiver to take control of operations in order to manage and preserve remaining investor funds.

The SEC has brought more than 40 enforcement actions over the past two years against frauds targeting retirees and other older investors, which will be a focus of the Commission's second annual Seniors Summit in Washington, D.C., on Sept. 10. The Summit also will include the release of findings from regulatory examinations of 110 firms offering "free lunch" investment seminars aimed at seniors.

In the latest action, the Commission alleges that Donald Neuhaus of Redding, CA, his daughter Kimberley Snowden, and their company Secure Investment Services, Inc., orchestrated the Ponzi scheme that falsely promised safe, secure, and profitable interests in life insurance policies known as "viaticals" while failing to disclose the dire financial condition of the investment venture. Many of the investors were elderly and invested their retirement savings. The Commission also alleges the father-daughter fraudsters pocketed $700,000 for their personal use while the scam was on the verge of collapse.

"Moving to shut down this Ponzi scheme reaffirms the Commission's overall commitment to aggressively investigating and stopping those who prey upon the retirement funds of older Americans," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "These perpetrators lined their own pockets and deliberately disguised the serious risks that investors faced, misleading senior citizens and others to believe they were making safe and secure investments when, in reality, they were being lured into a financial crisis."

Helane L. Morrison, Regional Director of the SEC's San Francisco Regional Office, added, "The defendants engaged in a predatory scheme, making promises that they knew they could not keep to senior citizens and other investors. The requested court order temporarily halting this fraud is a critical step in protecting these investors and preserving their remaining assets."

According to the SEC's complaint, Neuhaus and Snowden sold shares of life insurance policies, calling them "bonded life settlements." They persuaded investors to buy the securities by representing that their money would be used to purchase and pay the necessary premiums on the life insurance policies. They promised returns up to 125 percent when the person insured by the policy died.

The SEC's complaint alleges that Neuhaus and Snowden instead used investors' money for their own personal use and to cover the premiums on other insurance policies owned by other groups of investors. Their conduct constituted a Ponzi scheme in which every new investor was being defrauded to provide the cash needed to conceal the misrepresentations to an earlier group of investors. They failed to inform investors that the enterprise was on the brink of collapse, and that investors risked losing everything if life insurance policies expired due to lack of payment.

The SEC further alleges that Neuhaus and Snowden misled investors by providing them with life expectancy estimates supposedly certified by a physician who was, in reality, a convicted felon falsely holding himself out as a physician. They falsely claimed that the investments were protected by bonding companies. But these were, in fact, unlicensed overseas firms with no assurance of actually repaying investors.

The SEC's complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement, and civil penalties. The SEC acknowledges the assistance of the United States Attorney's Office for the Eastern District of California, the California Department of Corporations and the Criminal Investigation Division of the Internal Revenue Service.

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