$17 Million Ponzi Claim Given New Life

SAN JOSE (CN) - A dismissed complaint accusing Santa Cruz County Bank officials of conspiring with others in a $17 million Ponzi scheme was renewed Friday in Federal Court.

U.S. District Judge Edward Davila dismissed the original lawsuit from dozens of people in May, with leave to amend, writing: "Allegations of fraud ... must be 'specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong."

In the new complaint, filed Nov. 6, lead plaintiff Raf Strudley says: "Since at least 2002, defendants John A. Geringer, Christopher A. Luck, and Keith E. Rode have raised in excess of $17,571,835.11 from plaintiffs by misrepresenting the performance and strategy of their private investment fund," called GLR Growth Fund (for Geringer, Luck and Rode.)

Geringer, Luck, Rode and the bank are the only defendants in the new lawsuit.

The SEC filed a civil enforcement action against the three men and two GLR entities in May 2012, and the men, but not the bank, were criminally indicted in December that year, according to the lawsuit.

Also according to the lawsuit:

Geringer was sentenced in June this year to 12 years in federal prison for conspiracy, mail fraud and wire fraud, and ordered to pay restitution of $50.3 million.

Luck pleaded guilty to the same three charges in July 2014 and was sentenced to 130 months in federal prison and ordered to pay $33.2 million in restitution.

Rode pleaded guilty to mail fraud in December 2014, and in July this year was sentenced to 70 months in federal prison and ordered to pay $32.9 million in restitution.

Geringer, of Scotts Valley, Calif., was an independent adviser and sole member of GLR Advisors, which paid him to invest the assets of the GLR Fund, according to the complaint.

Luck, also of Scotts Valley, was a director of two of the private companies in which the GLR Fund invested, and a member of GLR Capital and GLR LLC, the complaint states.

Rode, of Franklin, Wisc., a CPA, was a director of two of the private companies in which the GLR Fund invested, a member of GLR Capital and GLR LLC, and had "a major business presence" in Santa Cruz County, Calif., according to the complaint.

"To induce investments, Geringer, Luck and Rode used false and misleading marketing materials," the complaint states. "These materials claimed the GLR Fund returned between 17-25 percent every year by investing in companies tied to well-known stock indices, such as the S&P 100 and 500, NASDAQ, and Dow Jones, as well as in oil, natural gas and technology-related companies."

In reality, the defendants put the money in "two illiquid, privately held technology startup companies," used some to pay off other GLR Fund investors, and kept the rest for themselves, the investors say.

They claim Geringer, Luck and Rode falsified records and gave the doctored information to investors to give the "false appearance of profitability: a classic Ponzi scheme."

Strudley describes himself and dozens of co-plaintiffs as small business owners and families "who spent years of hard work and frugal living to build their personal nest eggs," but lost millions of dollars on the Ponzi scheme.

He claims the money went to three companies: GLR Capital Management, Geringer Luck & Rode, and GLR Capital Advisors, and to Geringer, Luck and Rode themselves.

Finally, he claims that a former Santa Cruz County Bank vice president helped recruit new investors and used the bank to give the scheme an aura of legitimacy.

He seeks punitive damages for conspiracy to commit fraud, breach of fiduciary duty, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and negligent misrepresentation.

The plaintiffs are represented by Philip Gregory, with of Cotchett, Pitre & McCarty, of Burlingame, who was not immediately available for comment Monday.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit