SEC Says It Has Stopped $7 Million Ponzi
SALT LAKE CITY (CN) - Two Utah men took 50 investors for $7 million in a mortgage-backed securities scheme and used the money "to maintain a lavish lifestyle," the SEC claims in Federal Court.
Defendants Tyson D. Williams and D. Stanley Parrish, through their company ST Ventures and acting as unregistered brokers, sold collateralized mortgage obligations, or CMOs, from 2008 to 2012, the SEC says in the complaint.
The SEC says the men promised 100 percent return on principal, starting with 10 to 20 percent interest within 30 to 90 days of investment.
"Between January 2008 and January 2011, defendants, through STV, offered and sold investment contracts raising over $7 million from approximately 50 investors," the complaint states.
"STV did not file a registration statement with the Commission.
"Defendants offered and sold these investment contracts to residents of several states.
"Defendants promoted, offered and sold the investment contracts using the Internet, emails and telephone conference calls."
Williams, 42, of Washington, Utah, and Parrish, 42, of Highland represented themselves as "highly experienced," the SEC says, and claims that investing in CMOs was "very safe."
The complaint states: "While Williams or Parrish had some investment experience, some of that experience involved the loss of approximately $2 million in a Ponzi scheme in 2006-2007."
It adds: "Defendants told investors that STV would purchase collateralized mortgage obligations or interests in CMOs and then leverage the CMOs to produce a return for the investor.
"Defendants told investors that defendants were highly experienced in buying and selling CMOs and they had a history of locating and investing in nontraditional investments.
"Defendants promised investors a guaranteed rate of return of between 10-20 percent within 30 to 90 days of making their investment.
"Defendants represented to investors that their investment principal would never be at risk of loss because investing in CMOs is a very safe and liquid investment."
A CMO is a mortgage-backed security in which principal repayments are organized according to their maturities and into different classes based on risk.
The first CMO was created by two banks, Salomon Brothers and First Boston, for Freddie Mac in 1983.
Of the millions that Williams and Parrish allegedly netted in the scheme, the SEC says, the men used half for personal and business use.
They also paid earlier investors about $1.5 million with new investor money, the complaint adds - the hallmark of a Ponzi scheme.
"Defendants raised over $7 million from investors who testified they invested with defendants because they drove expensive cars, lived in large homes, and shared the same religious affiliation," the complaint states.
"Defendants used over $3 million in investor funds to maintain a lavish lifestyle, repay family members for prior investment losses in an unrelated scheme and for STV business expenses."
The SEC seeks an injunction, disgorgement of ill-gotten gains and civil penalties.