SEC Stops Ponzi Scammer Selling Notes in Florida Software Company
Although all Ponzi schemes inevitably collapse, it can be years before investors (or regulators) catch up with the scammer. For example, the U.S. Securities and Exchange Commission recently charged a Texas man with running a Ponzi scheme for more than a decade. The alleged scheme centered on efforts to raise money for a Florida-based software company. The man agreed to settle the SEC’s charges, which means he agreed to certain relief requested by the government without admitting guilt.
SEC v. Voight
Frederick Alan Voight operated a limited partnership known as DayStar, through which he controlled a number of other entities, including InterCore, a publicly traded company headquartered in Delray Beach, Florida. According to the SEC’s civil complaint, Voight owned about 45% of Intercore, which is developing software designed to “alert drivers of microsleep in advance of dangerous fatigue levels or driving accidents.”
The SEC said Voight has raised over $114 million since 2004 from at least 300 investors. These funds were supposed to support InterCore and other public companies where Voight served as a director or officer. In reality, the SEC said Voight “misappropriated investor funds” for himself and diverted some of the money to pay off earlier investors in Ponzi-type payments.
For example, the SEC said starting last October, Voight sent a letter to all existing InterCore shareholders, together with potential new investors, touting a “time-sensitive investment.” Specifically, Voight sold one-year promissory notes through DayStar “guaranteeing 30-42% annual returns.” Voight purportedly told investors he needed to raise $4.3 million in order to support the growth of InterCore’s software business. Altogether, the SEC said Voight sold nearly $14 million in promissory notes between October 2014 and May 2015.
What investors did not know, according to the SEC, was InterCore’s business was already in shambles. The SEC noted InterCore “had incurred significant losses and negative cash flows” since its founding and was running a nearly-$25 million deficit when Voight began selling the promissory notes. Indeed, InterCore officials acknowledged the company’s poor financial condition even as Voight allegedly told investors it was a “can’t miss” opportunity.
Ultimately, the SEC said Voight used about $7.2 million of the $14 million he raised to make “undisclosed Ponzi payments to other investors.” He transferred an additional $4.7 to other two affiliated entities under his control, which in turn loaned the money back to InterCore. The SEC said this was a deliberate effort to benefit Voight at the expense of investors. The promissory notes were only secured by assets held by DayStar, not the affiliated entities. Furthermore, the SEC said Voight received over $1 million in cash and additional benefits through the affiliated entities.
In settling the SEC’s complaint, Voight agreed to disgorgement of all funds misappropriated through his alleged Ponzi scheme. He will also be barred from selling securities or serving as an officer of a public company. A federal judge in Houston may order additional relief or civil penalties at a later date.
Look for the Warning Signs
There are usually warning signs a potential investment may be a Ponzi scheme. As noted in the case above, investors were told about a “time-sensitive” opportunity which promised returns far beyond a normal investment. In this case, investors were also told to invest in a public company which had failed to make its required regulatory filings and had never demonstrated profitability. All of these should have clued investors that something was amiss.
Still, even sophisticated investors may fall prey to a well-executed Ponzi scheme. If you have lost money as the result of such a scam and need advice from an experienced Florida securities fraud attorney, contact Gregory Tendrich, P.A., in Boca Raton right away.