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SEC Charges Fort Lauderdale Broker With Running Ponzi Scheme

On January 15th, the U.S. Securities and Exchange Commission filed a civil lawsuit against a Fort Lauderdale man and various entities under his control. The SEC accuses Frederic Elm of running a Ponzi scheme, defrauding dozens of investors out of more than $17 million. A federal judge has already agreed to freeze Elm’s assets and appointed an independent receiver to oversee his businesses.

SEC v. Elm

According to the SEC’s complaint, Elm solicited investors for his Elm Tree Funds beginning in November 2013. Elm sold limited partnership interests in Elm Tree Funds, which he claimed would trade in securities. Elm allegedly told investors he would only claim a 2% annual management fee unless and until Elm Tree Funds showed a profit, at which point he would earn a 20% commission.

But Elm apparently never made any profits. The SEC said Elm raised about $17 million, of which he invested only about $7 million in a brokerage account. That account has lost nearly $4 million. Elm then returned another $5.2 million to investors “in Ponzi-like fashion,” according to the SEC.

In fact, the SEC said Elm used the majority of his investors’ funds to repay investment principal and finance a lavish lifestyle for himself and his wife. Even though Elm was not supposed to receive any compensation above his 2% fee before showing a profit, he took much more. The SEC calculated the management fees should not have exceeded $381,000. But Elm “withdrew and misappropriated at least $2 million for his own personal benefit.” Elm used client funds to pay his everyday living expenses. He also purchased a $1.75 million home, $300,000 worth of cars, and $175,000 worth of jewelry.

In order to maintain the pretense of a profitable investment, the SEC said Elm provided investors with “false valuation statements.” Elm claimed his funds were worth about $125 million. The SEC said that was impossible given Elm had never made a profit and he was simply using new investments to repay older investors.

Altogether, the SEC has charged Elm and his related entities with ten counts of securities fraud. On January 16th, U.S. District Judge William Dimitrouleas granted the SEC’s motion for a temporary restraining order and asset freeze against Elm, his businesses, and his wife. An outside receiver has been named to assume control of Elm’s brokerage businesses and provide a full accounting to the SEC and the court. If the court ultimately finds Elm violated federal securities laws, it may order disgorgement of his assets and additional fines.

Don’t Fall for Ponzi Schemes

Even if the SEC’s prosecution of Elm is successful, there is no guarantee that all investors will get their money back. And it may take years for the courts to determine the extent of Elm’s alleged Ponzi scheme.

As an investor, you should always be cautious when investing in seemingly can’t-miss opportunities. Always be skeptical of claims of high returns with little or no risk. If you have been the victim of a Ponzi-type scheme and need legal advice, contact Florida securities fraud attorney Gregory Tendrich, PA, today.

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