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SEC Charges Rhode Island Broker With Running $11 Million Ponzi Scheme

On May 7, the U.S. Securities and Exchange Commission charged a Rhode Island investment adviser with running what amounted to a Ponzi scheme. The SEC alleges Patrick Churchville used his one-man company, ClearPath Wealth Management, LLC, to defraud investors out of millions of dollars. The SEC has asked a federal judge in Providence to issue a permanent injunction and order civil penalties and restitution.

SEC v. Churchville

According to the SEC’s civil complaint, Churchville has managed a series of private investment funds through ClearPath since 2008. Investors purchased shares in these funds, which were structured as limited partnerships managed by ClearPath. Basically, each limited partnership was comprised of a number of sub-partnerships, each of which contained a particular investment portfolio. Investors bought into a particular portfolio and were supposed to receive a share of any profits. The overall fund was responsible for paying Churchville and ClearPath’s legitimate management expenses.

Unfortunately, the SEC said, Churchville illegally diverted millions of dollars from these various funds to finance his own personal expenses. For example, in December 2010, the SEC claims Churchville “diverted approximately $1.6 million” from one of his client funds for his own “uses through a series of unauthorized transfers.” This violated the terms of the management agreement between ClearPath and the fund. But ClearPath allegedly did not have sufficient funds to cover its expenses, the SEC said, so Churchville simply took the money he needed from his clients.

Obviously, this diversion left a $1.6 million hole in the client fund’s account. So the SEC said Churchville simply raised the money from new customers, who were told they were investing in a new fund. In reality, the SEC said, Churchville simply took this new money and used it to plug the hole in the other fund created by his illegal diversion. As the SEC’s complaint noted, this “is typical of the behavior of those engaged in a Ponzi-like scheme.”

Altogether, the SEC said Churchville’s Ponzi-like operation cost investors over $11 million, and he personally “misappropriated” at least $6 million of client funds for his personal use, allegedly including “$2.5 million stolen from investors to purchase Churchville’s house.”

As always, a civil complaint is simply a statement of allegations. Neither Churchville nor ClearPath have been found liable in a court of law. But in addition to the SEC’s federal complaint, there is also a second, state court action against Churchville and ClearPath, which the Commission is seeking permission to intervene.

Need Legal Advice?

The SEC is attempting to recover as much money as it can for investors allegedly defrauded by Churchville and ClearPath. But even in the most favorable circumstances, it can be difficult for the SEC and other regulators to obtain full compensation for investors who lose money in Ponzi-type schemes. That is why investors should always be prepared to retain their own counsel to explore all of their legal options If you have been a victim of the type of Ponzi scheme discussed above and need advice from an experienced Florida securities fraud attorney, contact Gregory Tendrich, P.A., in Boca Raton right away.

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