BULLETIN: SEC Files Emergency Action To Halt Alleged ‘Diamond-Themed’ Ponzi Scheme And Related Fraud In Colorado; Richard Dalton Of Golden Accused Of Running Bizarre Multistate Scheme

BULLETIN: (UPDATED 7:49 P.M. ET (U.S.A.) A Golden man ran a diamond-themed Ponzi scheme as part of a larger fraud, the SEC has charged in an emergency court action in federal court in Colorado.

The agency said it filed the lawsuit to halt the actions of Richard Dalton and his company: Universal Consulting Resources LLC (UCR).

Among the explanations for delayed payments to investors were that an airplane the firm used to shuttle diamonds from Africa lost an engine and had to make an emergency landing in Amsterdam and that the firm ultimately had been sold 18,000 fake gems, according to the complaint.

Dalton’s age was not immediately clear. Regulators said he lived in Golden, and had been operating the diamond scam and a related fraud dubbed the “Trading Program.”

UCR “solicited investors for two fraudulent offerings that were generally referred to as the ‘Trading Program’ and the ‘Diamond Program’ and promised returns of between 60% to 120% per year,” the SEC charged.

“Dalton acted as an unregistered broker-dealer in actively soliciting investors to purchase securities – and commissioning finders and brokers to do the same – and Dalton and UCR offered and sold securities in violation of the registration provisions of the federal securities laws,” the SEC charged.

The scheme began in March 2007 and operated through June 2010, the SEC alleged.

Regulators charged that the scheme began to collapse in March and April of 2010.

“From that time until at least November 12, 2010, Dalton and UCR have made false and misleading statements to investors to try to lull them into complacency and delay the disclosure of their fraudulent scheme,” the SEC charged.

The diamond-themed fraud evolved from the initial fraud, the agency alleged. All in all, about 130 investors from 13 states plowed approximately $17 million into the schemes, according to the emergency filing.

Dalton “funded his personal life at the expense of investors and also transferred more than $900,000 in order to purchase a home in the name of his wife,” the SEC charged.

The SEC identified Marie Dalton as Dalton’s wife. She is named a relief defendant, meaning the agency believes she received ill-gotten gains from the scheme. Richard Dalton doled out thousands of dollars in cash as part of the scheme, including $936,000 in cash to purchase a home in his wife’s name, $35,000 for cosmetic dentistry, $38,000 for  Toyota truck and $5,000 for his daughter’s wedding, the SEC charged.

The agency is seeking an asset freeze.

“[I]n early 2009, UCR began offering the Diamond Program, which Dalton claimed would profit by using investor funds for diamond trading,” the SEC charged. “Similar to the Trading Program, Dalton claimed that investor funds would be safely held in an escrow account. Under the Diamond program, Dalton enticed investors with a guaranteed ten percent monthly return – or 120% yearly return.”

Commission-based salespeople helped Dalton sell the scam, the agency said.

“Investors typically learned about UCR’s investment programs from ‘finders’ or ‘brokers’ who were paid commissions by UCR, or from earlier investors who had received what they believed to be monthly distributions of profits from UCR, some of whom also received commissions for bringing in new investors,” the SEC said.

“According to one investor,” the SEC continued, quoting the investor, “[A]s a result of the consistent returns from this investment, I started telling my friends and family about the investment I had made with Dalton. My friends and family started meeting with Dalton and some of them eventually invested with Dalton.”

Some investors invested funds from their self-directed IRA retirement accounts, the SEC said.

“As part of soliciting investors for the Trading Program, Dalton and UCR falsely told prospective investors that their invested funds would be held safely in an escrow account at a bank in the United States, and that a European trader (often referred to simply as ‘the Trader,’ but never known or referred to by name) would use the value of that account, but not the actual funds, to obtain leveraged funds to purchase and sell bank notes,” the SEC charged.

The diamond-themed scheme operated in similar fashion, the SEC said.

Read the emergency complaint.

The complaint includes a reference to a Q&A session the SEC conducted with Dalton while investigating the case.

Dalton refused to answer the following questions, according to the SEC:

• Q Has UCR earned a profit in any year between 2007 and 2010?
• Q How much revenue has UCR earned between 2007 and 2010?
• Q Is it true that you currently have insufficient money to repay investors the
  outstanding principal and returns they are owed in the [Trading Program]?
• Q Is it true that some of the money that you raised for the [Trading Program] was used to repay other investors rather than being invested in foreign . . . notes?
• Q Is it true that some of the money you raised for the [Trading Program] was used for your own personal benefit to cover your personal expenses
  instead of for the benefit of that investment?
• Q Is it true that the foreign note investment was a Ponzi scheme?
• Q Is it true the mid-term note investment was a Ponzi scheme?
• Q Did UCR ever buy any diamonds?
• Q Have you ever bought any diamonds?
• Q Has any investor money ever been used as collateral for the purchase of
  diamonds?
• Q Have you ever engaged a bank to purchase diamonds?
• Q Do you currently have any diamonds in your possession?
• Q Do you have diamonds at your home?
• Q Do you any diamonds in storage?
• Q Have you moved diamonds to a foreign country?
• Q Have you ever made any profit from the diamond investment business?
• Q Isn’t it true that the diamond program is a Ponzi scheme?

If the SEC’s allegations are true, it means that Dalton and the company were telling tall tales to investors even after the agency had questioned him under oath. Indeed, the agency said, the Q&A session took place in August 2010 — and Dalton and the company made “false and misleading statements to investors” right up until last week.

Among the claims made as recently as last week was that investors could expect their funds   “soon,” the agency said.

The “soon” explanation was part of a long-running pattern, and “after ‘soon’ had passed,” Dalton provided “a different excuse for why investors have not been repaid.” the SEC charged.

One of the excuses was that the “number three engine” on the plane the company used to transport diamonds from Africa went out “and [the plane] had to land in Amsterdam for repair,” the SEC charged.

Dalton next claimed the company discovered after the plane finally made its way to New York that “18,000 fake diamonds” were included in its cargo.

He also did not turn over documents, according to the complaint.

“Dalton produced no documents to the SEC,” the agency alleged. “He provided no evidence that the Trading Program and Diamond Program were legitimate investment programs. UCR did not produce a single accounting record.”