SEC Says It’s Stopped $11M Ponzi Scam

CHICAGO (CN) - The SEC obtained a restraining order against a felon that it says is victimizing people again, this time in an $11 million Ponzi scheme. David Hernandez, who was sentenced to prison for wire fraud in 1998, sold bogus securities under the name of his defunct business, NextStep Financial Services, claiming, falsely, that he had a "payday lending relationship with Check 'N Go" stores, the SEC says.

According to the SEC complaint:

Hernandez sold "guaranteed investment contracts" and promised monthly returns of 10 percent to 16 percent; and he said the investments were insured. Since February 2008, Hernandez "raised more than $11.5 million from more than 100 investors in at least 12 states."

Hernandez used the money to pay off his $300,000 mortgage, gave $90,000 to his wife, bought a new car, a piano and jewelry, and spent "more than "$23,000 for a holiday party at the Ritz Carlton ... [and] more than $10,000 for dinners at Nine Chicago."

He used some of the money to start up a Web-based talk radio show, "Chicago Sports Webio." Along the way, he paid off some investors with money from newer victims, the hallmark of a Ponzi scheme, the SEC said.

Hernandez, of Downers Grove, has been convicted of wire fraud related to a position he held at Columbia National Bank, and "was sentenced in October 1998 to 34 months in prison, though he did not reveal this to investors, the SEC says. He also falsely claimed to hold an MBA from the University of Wisconsin and a J.D. from DePaul University, and he neglected to tell investors that he had filed for bankruptcy three years in a row.

U.S. District Judge Samuel Der-Yeghiayan granted the SEC's request for a restraining order.

Relief defendants include his Hernandez's wife, Gina Hernandez, and his other companies: NextStep Medical Staffing IL Inc., NextStep Holdings Inc., Spectrum Entertainment Group Inc. and The Ilumina Group Inc.

Judge Der-Yeghiayan froze all the defendants' assets.

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