EDITOR’S NOTE: If you’re an autosurf or HYIP promoter — or a person who is accepting fees for driving business to an investment opportunity based on assertions you cannot independently verify to be truthful — the story below should be instructive. It perhaps will be particularly instructive if part of your fraud game plan is to improve upon the lies told by the fraudster-in-chief.
In the first major Ponzi case brought in 2011, the SEC has charged a Utah man with presiding over a spectacular promissory-notes fraud involving at least $60 million and several co-defendants, including an attorney.
When the scheme started to collapse, delayed payments were blamed on “Homeland Security” and banking red tape caused by the Madoff Ponzi, the SEC charged, alleging that investors were discouraged from contacting authorities and told lies to keep hope alive that their money was safe.
Raymond P. Morris, 42, of Draper, conducted an unregistered offering and operated the Ponzi scheme “at least” between March 2007 and January 2009. The scheme defrauded “at least 90 investors” and was a Ponzi out of the gate, the agency said.
Three other Utah men, including attorney Luc D. Nguyen, 40, of Draper, helped the fraud spread by conducting no due diligence, recklessly repeating assertions made by Morris as though they were truthful and coming up with their own lies to drive money to the scheme, the agency alleged.
Also charged were James L. Haley, 49, of Draper, and Jay J. Linford, 49, of Orem. At the same time, several companies also were charged: E & R Holdings LLC, Wise Financial Holdings LLC, Momentum Leasing LLC, Cornerstone Capital Fund LLC, Vantage Point Capital LLC and Freedom Group LLC.
Ponzi Scheme Collapses
The Morris Ponzi scheme began to unravel in April 2008, when he stopped making regular payments to investors, the SEC charged.
“Morris gave many explanations to investors, including that Homeland Security had frozen the accounts, that the Madoff case had caused banks to hold funds and that typographical errors in wire request forms had caused delays,” the SEC charged.
“Morris told Haley, Nguyen and Linford to pass these explanations on to investors, and they did so without questioning Morris or conducting due diligence on Morris or the Fund,” the agency charged. “As investors complained and threatened to go to the Commission and other government agencies, Morris began disseminating phony bank statements falsely showing that he had over $200 million deposited with Wachovia Bank.
“In late October 2008, Morris gave Nguyen a purported ‘Bank Confirmation Letter’ from Wachovia,” the SEC continued. “This fraudulent letter states that Wachovia ‘currently holds funds in the amount of . . . $201,782,567.89 . . . [and] Mr. Raymond Paul Morris is the signatory on this account.” The letter also says ‘the funds are good, clean and of non-criminal origin, are unencumbered and freely disposable.’”
Meanwhile, the agency charged, Morris gave Nguyen a phony ‘Verification of Depository,’ also purporting to be from Wachovia Bank, showing that $201,827,067.89 was in Morris’s account.
“After Nguyen received the bogus ‘Bank Confirmation Letter’ and ‘Verification of Depository,’ he agreed to draft a letter to Morris’s investors, assuring them their funds were safe.
“Nguyen’s October 30, 2008 letter states that ‘Mr. Morris is in possession of funds that will allow for the return of the principal amount of your investment along with any back interest in the anticipated redemption of your Promissory Notes(s),’” the SEC continued.
“This letter further confirmed that Nguyen was ‘in possession of a copy of an official bank letter confirming that the funds are in a specified account under Mr. Morris [sic] signatory control at such bank,’” the SEC said. “Nguyen did not conduct reasonable due diligence prior to sending this October 30, 2008 letter. The letter caused investors to delay their attempts to contact government authorities regarding Morris, Haley, Linford and Nguyen and their investment activities.
“By the time the Ponzi scheme unraveled, Morris, Haley, Linford and Nguyen, and their respective entities, had defrauded at least 90 investors out of $60 million or more by offering and selling unregistered and non-exempt promissory notes based on material misrepresentations and omissions,” the SEC charged.
Other Misrepresentations
Lies fueled the scheme, the SEC charged.
“Morris told investors that their principal would only be used for ‘verification of deposit’ purposes by certain private traders,” the SEC charged. “Morris further told investors these private traders would obtain large lines of credit and invest the proceeds in ways that would generate a guaranteed 20% per month interest rate.
“In reality, Morris used investor money for personal expenses, including a luxurious home and several sports cars, and for making Ponzi payments to create an illusion of a successful investment,” the SEC said.
Haley took the base story and improved upon it, the SEC said.
“From about August 2007 through June 2008, Haley, through his entities Cornerstone Capital and Vantage Point, raised at least $20 million for Morris’s Fund. In soliciting investments, Haley repeated Morris’s misrepresentations to investors and made additional misrepresentations, including that he was the sole owner of the Fund,” the SEC charged.
“Out of the approximate $20 million Haley raised, Haley used at least $700,000 for personal expenses, including payments on a new home and $25,000 per month rental payments while building this new home,” the SEC charged.
Linford, accused of collecting about $1 million for the scheme, added to the lies, as well, the SEC charged.
“Linford also knowingly misrepresented to some investors that he controlled the secure account where their funds would be held,” the SEC charged. “Contrary to what Linford told investors about their funds being secure, the wiring instructions he gave investors were instructions to deposit funds into an account Morris controlled. Linford had no authority to verify what was being done with investor funds once they were deposited into Morris’s account.”
Nguyen held himself out as an “SEC attorney” and told investors the fund was “one of the best he had ever seen,” the SEC charged.
“Nguyen told investors he had personally met with the attorneys representing the supposed trading companies involved in the Fund and that he had received copies of all operating agreements between the leasing companies and the trading companies,” the SEC charged. “In fact, Nguyen performed no due diligence on Morris or the Fund, never met with anyone affiliated with the Fund or a leasing company or trading company involved with the Fund and never received any documents associated with the Fund.”
Read the complaint.