Massachusetts Secretary Of State Seeks C&D Order, Disgorgement Against Individuals, Company That Helped Richard Elkinson Sell Alleged Ponzi Scheme

In a case that may cause worry among autosurf and HYIP enthusiasts who earn sales commissions, Massachusetts Secretary of State William Galvin has sent the state Securities Division after the profits earned by two individuals and a company that recruited investors into the alleged Richard Elkinson Ponzi scheme.

Galvin’s office filed civil papers today that accused two individuals and their company of selling unregistered securities and acting as unlicensed broker-dealers.

Elkinson, 76, was arrested in Mississippi yesterday by federal agents. Federal prosecutors in Massachusetts said he had been running a Ponzi scheme — perhaps for 20 years — in which he told investors he was a broker for government uniforms and sports uniforms. Investors are out nearly $30 million.

Casino records in Las Vegas show that Elkinson “conducted a total of more than $3.7 million in currency transactions over $10,000″ since 1998, prosecutors said.

Now Galvin has opened a second legal front — this one at the state level — that is aimed at promoters of the alleged scheme and seeks a cease-and-desist order. Galvin said promoters were serving as unregistered broker-dealers, or unregistered agents of broker-dealers or issuers of securities.

They also were serving as unregistered investment advisers or unregistered investment adviser representatives, Galvin said.

Named in the state administrative complaint were Jay Lawrence Fialkow, Jeffrey P. Ross and their company, RossFialkow Capital Partners LLP.

Galvin is seeking the disgorgement of illegal profits and a financial penalty. At the same time, he is seeking an accounting of all the proceeds Fialkow, Ross and the company received from Elkinson in the alleged scheme. Subpoenas already have been served.

Separately, the FBI said Fialkow and Ross — who are not defendants in the Elkinson criminal case — referred “numerous investors” to Elkinson and that their referrals dumped as much as $10 million into the scheme.

The state, Galvin said, began to receive complaints about Elkinson Dec. 21, after investors were unable to contact him to inquire about overdue money they were owed in the scheme. “Several” investors identified RossFialkow as the source of their referrals, and the state “immediately sent several staff members” to the RossFialkow office in Newton.

Both Ross and Fialkow were at the office, and met with state investigators for an hour, according to Galvin’s filing. The state said it believes Ross and Fialkow received “at least” $319,000 in commissions.

In December, Elkinson “disappeared,” Galvin said, claiming at different times to be in Philadelphia, Chatsworth, Calif., and San Francisco, while also claiming he was “on the verge of obtaining a large sum of funds” to satisfy investors.

“In reality, Galvin said in the Massachusetts filing, “[Elkinson] was on the run from federal and state law enforcement authorities.”

When interviewed by the state in December, Galvin said, Fialkow said the company had accepted Elkinson’s assertions that his business had a “handshake” agreement with the purported supplier of uniforms in Japan.

Fialkow and Ross — who were Elkinson investors as well as promoters — “also never received any tax documentation from their investments with Elkinson,” Galvin said. “While Fialkow told the Division he found this odd, he never pressed the issue with Elkinson, while RossFialkow continued to refer investors into Elkinson’s scheme.”

Read the Massachusetts Securities Division filing.