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Gregory Tendrich, PA Gregory Tendrich, PA

SEC, California Prosecutors Expose $2.6 Million Ponzi Scheme

Investors should always be cautious when dealing with unregistered investment advisors. Registration with the U.S. Securities and Exchange Commission and state officials are important tools that provide investors with access to critical information. It is far too easy for scammers to lure unsuspecting investors with fake credentials and non-existent investment products.

SEC v. Moore & United States v. Moore

Recently, the SEC and federal prosecutors in San Diego uncovered one such scam run by a man posing as a hedge fund manager. On July 16, Paul Moore IV, pleaded guilty to criminal securities fraud in connection with a Ponzi scheme he ran from 2009 until 2013. That same day, the SEC separately filed a civil complaint against Moore, seeking disgorgement of money he stole from investors and additional civil penalties.

As described in the SEC’s civil complaint, Moore operated a now-defunct California company, Coast Capital Management, LLC, which marketed itself as a hedge fund. Moore was never registered as an investment advisor with the SEC or California securities regulators. He further misrepresented his education and background to investors, falsely claiming he graduated from college with an economics degree and that he worked as a trader for an established securities broker.

Moore ultimately raised about $2.6 million for Coast Capital from about 40 investors. But according to federal officials, Moore never invested any of the money for the benefit of his clients. Instead he spent most of the money on himself. The SEC described Moore’s spending in detail, including “$14,000 on internet pornography,” “$284,304 in retail merchandise for himself,” and “$294,317 on personal travel.” Indeed, the only client funds Moore actually invested were through his personal brokerage accounts.

To keep clients from discovering his fraud, Moore created fictitious account statements using a popular financial software program. This “led many clients to believe they held a brokerage account,” when in fact they had no money invested whatsoever. Moore then used about $625,000 of the money he raised to pay back some of his early investors—in other words, a classic Ponzi scheme. The SEC said only 17 of Moore’s 40 clients received such payments, however, leaving the majority with nothing to show for their “investment” with Coast Capital.

The United States Attorney’s office in San Diego said Moore faces sentencing in his criminal case on October 5. The maximum statutory penalty for criminal securities fraud is 20 years imprisonment, a $5 million fine and restitution to his victims. Moore’s actual prison sentence and fine will likely be less than the the maximum. The criminal penalties are also in addition to any civil fines or disgorgement obtained by the SEC in its separate civil case, which remains pending.

Know Your Broker’s Background

A key element of Moore’s Ponzi scheme was his false representations to investors regarding his education and work history. As the SEC noted, this information was material to investors because “all of these misstatements led investors to believe that Moore possessed investment acumen and experience which in fact he did not.” Had Moore been properly registered as an investment advisor, investors would have had access to the truth.

If you have been the victim of an “investment advisor” who has misrepresented his background or otherwise defrauded you out of your money, contact Florida securities fraud attorney Gregory Tendrich right away.

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