The Securities and Exchange Commission today warned investors to thoroughly check the claimed credentials of people soliciting their investments to ensure they are not falsifying, exaggerating, or hiding facts about their backgrounds. The agency has brought several recent enforcement cases along these lines, including two actions announced today.
An investor alert issued by the SEC’s Office of Investor Education and Advocacy cautions, “Do not trust someone with your investment money just because he or she claims to have impressive credentials or experience, or manages to create a ‘buzz of success.’” The alert notes that investors sometimes unintentionally contribute to a fraudster’s false reputation of success and accomplishment by merely repeating to others the misrepresentations being made to them. Investors can conduct background checks of financial professionals to ensure they are properly licensed or registered with the SEC, Financial Industry Regulatory Authority, or a state regulatory authority by visiting the “Ask and Check” section of the SEC’s Investor.gov website.
The SEC Enforcement Division today announced two separate fraud cases against investment advisers who made false claims about their experience and industry accolades in an effort to gain the trust and confidence of investors.
“Advisers looking to raise funds cannot lie about their backgrounds to lull investors into a false sense of security about their purported expertise or the profitability of a potential investment,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Each adviser in these cases used false claims about his background to create trustworthiness and lend credibility to their offering schemes.”
An SEC investigation found that Michael G. Thomas of Oil City, Pa., touted that he was named a “Top 25 Rising Business Star” by Fortune Magazine as he solicited investors through blast e-mails and the Internet for a private fund named Michael G. Investments LLC. No such distinction actually exists at Fortune Magazine, and Thomas also greatly exaggerated his own past investment performance, misrepresented that certain industry professionals would co-manage and advise the fund, and inflated the fund’s projected performance. To settle the SEC’s charges, Thomas agreed to pay a $25,000 penalty and consented to an order requiring him not to participate in the issuance, offer, or sale of certain securities for five years. He also is barred from associating with any broker, dealer, or investment adviser for at least five years.
A separate SEC investigation found that Todd M. Schoenberger of Lewes, Del., misrepresented that he had a college degree from the University of Maryland and touted his appearances on cable news programs while soliciting investors to purchase promissory notes issued by his unregistered investment advisory firm LandColt Capital LP. Schoenberger falsely told prospective investors that LandColt would repay the notes through fees earned from managing a private fund. Schoenberger never actually launched the fund, never had the commitments of capital to the fund that he claimed, and never paid investors the returns he promised. To settle the SEC’s charges, Schoenberger agreed to pay $65,000 in disgorgement of ill-gotten gains plus interest. He consented to an order barring him from associating with any broker, dealer, or investment adviser and from serving as an officer or director of a public company.
The SEC’s investigation of Thomas was conducted by Mark D. Salzberg and Corey A. Schuster of the Asset Management Unit, and the case was supervised by Panayiota K. Bougiamas and Jeffrey B. Finnell. The SEC’s investigation of Schoenberger was conducted by John G. Westrick of the Asset Management Unit and supervised by Stephen E. Donahue. The investor alert was prepared by M. Owen Donley III and Holly Pal in the Office of Investor Education and Advocacy.