Now, A ‘Belgian Royalty’ Ponzi Scheme; SEC Says Guy Albert de Chimay Used Investors’ Funds To Pay Divorce Lawyer, ‘Massive’ Credit-Card Bills, Rent, Payroll

UPDATED 9:31 A.M. EDT (U.S.A.) Saying Guy Albert de Chimay and his unregistered investment-advisory business “simply stole” clients’ funds while telling investors their money was safe with the “U.S. investment arm of the Chimay royal family of Belgium,” the SEC has gone to court in New York to halt what it described as a massive fraud.

Separately, Chimay, 47, was arrested in North Carolina after being indicted by prosecutors in New York on charges of forgery and grand larceny. Chimay claims to be a cousin to a Belgian prince, according to court documents.

In an emergency action, the SEC is seeking to freeze the assets of Chimay and Chimay Capital Management Inc. and obtain an order to repatriate assets to the United States. The SEC has advised a federal judge that Chimay was operating a fraudulent “bridge loan” scheme in which investors were told their money would be used to make loans to creditworthy borrowers locked out of the banking system owing to the “credit crisis.”

“Chimay used the trappings of royalty to perpetrate the most common of frauds,” said George S. Canellos, director of the SEC’s New York Regional Office. “Chimay blatantly lied to investors about nonexistent investments and then used their money to bankroll his exorbitant personal and business debts.”

Although the number of victims is not yet known, the scheme netted Chimay and his company at least $6 million. Some of the money instantly was used in “classic Ponzi scheme fashion” and “diverted to payoff disgruntled counterparties in Defendants’ other business ventures,” the SEC charged.

In some cases, the SEC said, money sent in by investors lured by the promise of an annual return of 12 percent was diverted the very same day it was received.

On April 21, 2009, a client the SEC described as “Investor A” wired an initial BLF [Bridge Loan Facility] investment of $500,000 to a Chimay-controlled account at Goldman Sachs Execution and Clearing,” the SEC said. “The GSEC account had been opened in March 2009 and contained only $10,000 when Investor A’s funds were deposited. At the time of his investment, Defendants represented to Investor A that the size of the ‘bridge loan’ pool into which he would be depositing his funds was $50 million.

“On the same day Investor A transmitted his funds to Defendants, the SEC continued, “Chimay instructed his introducing broker to direct GSEC to wire the bulk of Investor A’s investment to three external accounts: (i) $289,000 for “legal fees – re Chimay” to the . . . account of the New York law firm representing Chimay in a divorce proceeding in New York state court; (ii) $61,000 to a TD Bank account maintained by Chimay Capital for purported use as generic ‘working capital’; and (iii) $100,000 to another entity to satisfy Chimay Capital’s unrelated contractual obligation to provide operating capital to the entity.”

Wanting to invest more with Chimay less than a month later, Investor A wired an additional sum of $170,000 to the GSEC account on May 12, 2009, the SEC said.

On the very same day, Chimay “directed that $140,000 be wired to a Chimay Capital (Int’l) account at TD Bank,” the SEC said. “Later that day, after the $140,000 had been received at TD Bank, $90,000 of Investor A’s investment were transferred to Chimay’s personal account at TD Bank, where it was thereafter used to subsidize Chimay’s costly personal and living expenses, including his mortgage, car payment, credit card payments, utilities and cash withdrawals.”

A client described by the SEC as “Investor B” entrusted more money to Chimay than did Investor A, and was fleeced in similar fashion, the SEC said. The agency added that the transaction was routed through Bermuda, and that the Bermuda Monetary Authority had provided assistance in the probe.

“Investor B invested $2 million in the BLF in October 2008 by wiring his investment to an account at Butterfield Bank in Bermuda,” the SEC said. “Among other things, Investor B’s funds were used to fund a $200,000 personal check made out to Defendant Chimay, which he deposited the same day into his personal checking account at TD Bank.

“Chimay thereafter used Investor B’s money to make tens of thousands of dollars in rapid fire payments to Chrysler Finance, American Express, Indymac Bank, and Capital One,” the SEC charged. “Investor B’s funds were also used to pay $330,000 to another investment firm to meet Defendants’ contractual agreement to provide operational capital to the firm, and to pay Chimay Capital’s rent and payroll in November 2008.”

Described as “[o]blivious to the fact that his money had been diverted for improper purposes, and still under the belief that he would receive safe and steady returns of 12%, Investor B entrusted another $2 million to Chimay in January 2009, the SEC said.

“The day after Investor B wired his second $2 million investment to Butterfield Bank on January 29, 2009, Defendants transferred approximately $1.8 million from the account to another Butterfield account controlled by Chimay. Chimay thereafter immediately used Investor B’s funds to make a payment of $250,000 to his divorce counsel, and to fund the $643,000 redemption of an investor in a Chimay Capital hedge fund.”

Other investors identified by the SEC with a letter of the alphabet suffered similar fates, the agency said.

One of the investors — “Investor D” — became worried, and asked Chimay to provide proof the money had been invested as advertised, the SEC said.

“In order to reassure Investor D that Defendants had ample liquidity, and that Investor
D’s BLF investment was safe, on October 5, 2009, Chimay provided Investor D with a bank
account statement from Butterfield Bank purporting to show liquid assets of approximately $14 million,” the SEC said.

“The Butterfield statement was fraudulent; the actual account balance was zero,” the agency said.

In reverse-engineering Chimay’s dealings with Investor D, the agency discovered that nearly all of the $1 million investment made in August 2009 had been misappropriated, the SEC said.

“Defendants misappropriated Investor D’s funds by, among other things, using them to make a $500,000 payment to a third party that had loaned Defendants approximately $1.4 million in July 2009 to purchase shares in a technology company,” the SEC said. “Defendants also misappropriated Investor D’s funds to make a $339,000 payment to the firm that had served as the custodian of the Spartan Mullen funds, which Defendants claimed to have liquidated in March 2009.”

In July 2009, Chimay and his company claimed to have $200 million under management and to have served as custodian for the Bermuda-based Spartan Mullen Chimay funds, which the SEC described as “now-defunct hedge funds.”