Class Alleges $11 Million Ponzi Scheme

CHICAGO (CN) - A man who the SEC says swindled "$11.5 million from more than 100 investors in at least 12 states" now faces a federal class action. David Hernandez is accused of selling phony securities through his dissolved business, NextStep Financial Services, falsely promising 10 to 16 percent returns with no risk.

Investors say Hernandez lied about having a payday lending relationship with several "Check 'N Go" stores, through which he claimed the money would be invested, and lied about insurance on his "guaranteed investment contracts."

Hernandez, 48, a felon who served time for wire fraud in 1998, has run a "classic Ponzi scheme" since February 2008, using new money to pay off old investors, the class says. They say he used investors' money to pay off his mortgage and "purchase cars, jewelry, a piano, and for other non-investment related purposes."

Hernandez also used their money to run his other businesses, including his Web-based talk radio show, "Chicago Sports Webio," according to the complaint.

Investors say Hernandez lied about his banking experience, falsely advertised that he had an M.B.A. from the University of Wisconsin and a J.D. from "The John Marshall Law School at DePaul University" - which, the class notes, are two different law schools. The class claims that all these schools have denied having Hernandez as a student.

The named plaintiffs say they lost $156,000 in Hernandez's scam.

The class alleges violations of the Securities Act and Exchange Act, breach of contract, unjust enrichment, fraud and negligence.

The SEC obtained a restraining order against Hernandez in June based on similar allegations.

Defendants in the class action include David Hernandez, NextStep Financial Services, NextStep Medical Staffing, NextStep Holdings Spectrum Entertainment Group, The Ilumina Group, Hernadez's wife Gina Hernandez, and Hernandez's alleged business partners Michael North, Daniel Jiggetts, BeBe North, Cortez Trotter, and Anne Williamson.

The class is represented by Mark Belongia with Belongia, Shapiro & Hynes.

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