International Law

Equity Investment Management and Trading Ponzi

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From the SEC Press Release on the Equity Investment Management and Trading Ponzi scheme.

"The Securities and Exchange Commission today charged Northern California residents Anthony Vassallo and Kenneth Kenitzer for orchestrating a multi-million dollar investment fraud.

Vassallo agreed to a court order freezing his assets.

The SEC is seeking an emergency court order to also freeze the assets of Vassallo's company, Equity Investment Management and Trading, Inc. (EIMT).

According to the SEC's complaint, Vassallo and Kenitzer raised more than $40 million from about 150 investors from approximately May 2004 to November 2008. Vassallo told investors, many of whom he met through his church, that he had a proprietary computer software program that allowed him to buy and sell stock options and generate returns of 3.5 percent per month with little risk of loss.

The SEC alleges that Vassallo and Kenitzer instead used investors' money for unauthorized purposes, including a variety of other schemes never disclosed to investors.

The SEC's complaint, filed in federal court in Sacramento, alleges that Vassallo told investors that their money was being invested in securities pursuant to a proprietary trading strategy that promised high returns with minimal risk.

From September 2007 through approximately November 2008, Kenitzer, who participated in EIMT's day-to-day operations, posted false trading results on the company's Web site and distributed phony investment reports to investors that led them to believe EIMT was achieving consistent, positive returns.

According to the SEC's complaint, EIMT actually had not conducted any stock trades since at least September 2007, when its brokerage firm terminated Vassallo's trading privileges.

The SEC alleges that Vassallo and Kenitzer kept the scheme going by using money raised from new investors to pay earlier investors, a classic hallmark of a Ponzi scheme."

The SEC complaint can be read here, and it gives a little bit more background.

Apparently, there may have never been any trades and in "some instances, Vassallo provided investors with documents that purported to show that, with one exceptionthat had occurred years earlier, Vassallo had never suffered a monthly loss."

The amount of $26.3 million appears to be missing and unaccounted for by Vassallo.

According to the complaint;

"On or about April 11, 2006, EIMT opened an account at the brokerage firm, TradeStation Securities, Inc. ("TradeStation").

EIMT conducted trades in this account (referred to herein as "EIMT TradeStation Account 1") until approximately April 2007. However,in approximately April 2007, Vassallo and Kenitzer issued wire instructions to transfer virtually all ofthe funds then on deposit in EIMT TradeStation Account 1 (approximately $14 million), to an EIMT bank account.

Since that time, EIMT has not made any additional deposits to, or conducted any trades through, EIMT TradeStation Account 1.

In or about June 2007, EIMT opened a second account at TradeStation (referred to herein as (EIMT TradeStationAccount 2") into which EIMT deposited a total of $16 million.

However, in or about July 2007, Kenitzer issued wire instructions to transfer $12.3 million of those funds out ofEIMT TradeStation Account 2, and back to an EIMT bank accourit. Then, in or about mid-September 2007, EIMT's TradeStation Account 2 was closed, and all the remaining funds were transferred back to an EIMT bank account"

Full post as published by Misleading Advertising Law on March 12, 2009 (boomark / email).