NEW CITY, N.Y. (CN) – Six investors say they lost more than $10 million in a Ponzi scheme. Delaware Charter Guarantee & Trust dba Principal Trust was supposed to administer the investors’ pension plan, but the securities brokerage reported false gains during the recession and paid off old investors with new money, according to the complaint in Rockland County Court.
Principal Trust, a member of the Principal Financial Group, began running the Ponzi scheme in 2004 by using new investments to cover trading losses, while diverting money for personal use, according to the complaint.
The pension funds were supposed to be invested with nonparty Westgate Capital Management, but Westgate president James Nicholson lost his series 7 license in 2001 and was prohibited from securities trading, according to the complaint.
Nicholson lost his license after he gave misleading information to a regulatory agency, the National Association of Securities Dealers, according to the complaint.
The investors say that Principal and Westgate prepared false account statements, lied to the Internal Revenue Service and doctored “independent” audits, while taking “generous” management fees.
“Even though defendant Principal Financial Group knew they were participating in the facilitation [of] Nicholson and Westgate’s fraud, they did continue to do so in order to preserve their valuable pension plan administration and/or management and/or trustee relationship with Nicholson and Westgate, which provided them with substantial revenues and balance sheet assets,” according to the complaint.
The plaintiffs – Barbara Burns, James Burns, Daniel Mancuso, Kevin Romano, Robert Sheridan and Michelle Venema – seek an accounting, $5 million and punitive damages for fraud, breach of fiduciary duty and misrepresentation. They are represented by Burton Dorfman of Nyack, N.Y.