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Neat Ponzi Scheme Executed in Buffalo

The SEC is reporting that their temporary restraining order, TRO, against was extended

"The Commission's complaint, filed on May 15, 2008, alleges that from at least May 2005 to the present, Gane and M-One orchestrated a securities offering fraud that has raised at least $5.7 million from approximately 90 investors, including a number of senior citizens, through the sale of debentures and promissory notes issued by the various entity defendants.

Gane is a principal of each of the issuing entities.

The complaint further alleges that the defendants told investors that their money would be used to purchase or develop real estate, but instead Gane: (i) used new investor funds to pay back earlier investors; (ii) misappropriated investors' funds by using them to pay himself, his family, and others; and (iii) transferred substantial portions of investor funds to Denkon, Inc., Guy W. Gane, III, and Jenna Gane for no apparent consideration.

In addition, the complaint alleges that the debentures offering was not registered with the Commission and that Gane violated the broker-dealer registration provisions of the federal securities laws."

So how did they find the 90 or so marks? Well, according to the SEC complaint against Watermark and Gane

"In an effort to locate potential investors for the fraudulent Watermark debentures offering, Gane and Altadonna, and other registered representatives, associated themselves with various broker-dealers registered with the Commission.

After building a customer relationship with certain investors by selling them annuities and mutual h d s , they offered and sold these investors the Watermark debentures.

They also induced some investors to liquidate other investments in order to purchase the debentures by representing that Watermark would pay a higher, fixed return, usually 10% per year, and any fees associated with surrender of the investments."

That is clever, the trust would be built up in the normal fashion, and then wham, bam, thank-you ma'm. Please sign here on the promissory line.

Note too that the 10% return is not outrageous, and that Gane was licensed and registered to sell some securities.

All the tell a tale signs of fraud that the regulators love to trot out are not present here.

So how would you have been alerted to a possible fraud?

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Full post as published by Misleading Advertising Law on June 26, 2008 (boomark / email).