International Law

Kay Services Ponzi Scheme

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Unlike the WexTrust Ponzi, the Kay Services scheme as reported seems more simple:

"The Securities and Exchange Commission announced today that it filed a civil injunctive action against Kay Services, LLC, and its sole owner and officer, Marcia Sladich, alleging that they orchestrated a Ponzi scheme raising more than $10 million from at least 1,000 victims, many of whom were members of the Family Federation for World Peace, formerly known as the Unification Church.

The complaint alleges that Sladich repeatedly told investors that their money would be invested in domestic and international real estate that would generate substantial returns.

Indeed, Sladich promised investors 50-100% guaranteed return on their investment in one year. She also promised investors additional payments for every investor they referred.

Sladich's representations to investors were simply false.

Throughout the scheme, Kay Services had no revenue-generating business or assets. Instead of investing in real estate, Sladich used investor money:

(1) to pay Kay Services' obligations to existing investors;

(2) to pay Sladich's personal expenses; and

(3) to purchase real property and other assets for Sladich and her relatives.

Sladich never disclosed any of these facts to investors"

From the complaint;

1. The scheme was conducted fiom Sladich's Clifton, New Jersey home and fiom Kay Services' Clifton, New Jersey office. Many victims of the fiaud were solicited in New Jersey. 

2. In addition to operating Kay Services, Sladich works as a ticket-taker and usher at the Meadowlands sports complex. Sladich is a member of the Family Federation for World Peace, formerly known as the Unification Church. 

3. In or around late 2004, Sladich began soliciting her friends and fellow members of the Unification Church in Clifton, New Jersey to invest with her. Sladich told investors that their money would be combined for investment in real estate. 

4. As the number of investors increased, Sladich began requiring a minimum of $3,000 investment. Sladich offered the investors a 100% return over the course of a year. In exchange for a $3,000 investment, for example, she promised investors monthly payments of $500 for one year, for a total of $6,000. 

5. Sladich also offered investors a $100 monthly payment for every investor they recruited to invest in the scheme. By so doing, Sladich developed a network of investment group leaders who helped her recruit more investors. 

6. In addition, during the course of the scheme, Sladich sent more than $400,000 to her relatives in Brazil. Although some of the money Sladich sent to Brazil was used to purchase real property, all of the property purchased was titled in the name of Sladich's relatives, including her mother. None of the properties purchased in Brazil by Sladich's relatives generated any income for Kay Services. 

7. In early 2007, Defendants encountered difficulty in meeting Kay Services' obligations to existing investors. Sladich delayed the scheme's collapse by convincing some investors to "re-invest" the monthly payments that were owed to them instead of receiving the payments when due. In addition, Sladich instructed a Kay Services employee to lie to investors about when they would receive their payments. 

And how were the marks cooled out?

8. The scheme finally collapsed in or around October 2007. By letter dated October 9,2007, counsel for Kay Services informed investors that, "[als a result of unforeseen financial developments, including but not limited to volatility in real estate and other investment markets," Kay Services would no longer guarantee a return of earned income above the amount invested. The October 2007 letter asked investors to execute an agreement, releasing the Defendants from liability in exchange for the return of their principal. 

Those who signed the release didn't get a return of their principal.  Nice.

Full post as published by Misleading Advertising Law on August 12, 2008 (boomark / email).