PHILADELPHIA (CN) - The former CEO of Ballamor Capital Management fraudulently induced clients and others to invest $100 million in a fund "that purportedly purchased lawsuit settlements from now-convicted Ponzi schemer Scott Rothstein," the SEC claims in court.
The SEC sued Barry R. Bekkedam in Federal Court.
Ballamor Capital Management, of which he was owner, chairman and CEO, is not named as a party to the case.
Here's what happened, according to the SEC lawsuit: "Beginning in 2005, Rothstein falsely claimed that certain of his clients-plaintiffs who had reached confidential settlements in sexual harassment, whistle-blower, and qui tam actions against large corporate defendants were willing to assign the full amount of their periodic settlement payments in exchange for immediate, but discounted, lump sum cash payments. Rothstein told prospective purchasers of the settlements that, although the settling defendants had deposited the full amount of the settlements in trust accounts at his law firm Rothstein, Rosenfeld and Adler, PA ('RRA'), the plaintiffs were to be paid their settlements in periodic installments to ensure the plaintiffs' compliance with the settlements' confidentiality provisions.
"In early 2009, Bekkedam was approached by George Levin ('Levin') to help solicit investments to purchase Rothstein settlements. Levin had already invested millions in the Rothstein settlements, both individually and through entities that he controlled, and these investments were at risk if Levin could not find additional investors. In April 2009, Levin and Bekkedam, among others, formed the Banyon Income Fund, LP (the 'Banyon Fund') for the purpose of investing in Rothstein's purported settlements. Levin controlled the General Partner of the Banyon Fund and Ballamor served as the Limited Partner Representative to the Banyon Fund.
"When soliciting his advisory clients and other prospective investors to invest in the Banyon Fund, Bekkedam made material misrepresentations and omissions regarding the level of due diligence he and Ballamor had performed, including their access to information confirming the existence of the settlement funds, the authenticity of Rothstein's investment program, and the overall safety of investing in the Rothstein settlements.
"Despite lacking essential information regarding Banyon Fund's investments in the Rothstein settlements, Bekkedam solicited investments from advisory clients and other investors while complaining to Levin that '[w]hen I meet with people and say we have this due diligence and don't it makes it even more difficult in this environment.' Bekkedam continued to solicit investments even after Levin forwarded an email from Rothstein refusing to provide Bekkedam with 'any access to any of our files etc. until they give us some real assurance as to their ability to perform on this latest most important funding.'
"Bekkedam also concealed from his advisory clients and other prospective investors the nature of his relationship with Levin and the clear conflicts of interest resulting from the financial arrangements between Levin and Bekkedam and his affiliates. Throughout 2009, Levin and Bekkedam engaged in a series of transactions designed to funnel money to Bekkedam and his related entities in exchange for Bekkedam's solicitation of investors in the Banyon Fund. The transactions included Levin's purchase of approximately $3 million in municipal bonds from Bekkedam, Levin's agreement to help Bekkedam restructure $10 million of his personal and business debt, Levin's agreement to invest up to $5 million in Ballamor, and Levin's purported investment of $5 million in a bank co-founded by Bekkedam with an agreement to invest up to an additional $13 million.
"Rothstein's investment program was nothing more than a Ponzi scheme. There never were any settlement funds; there never were any settlements; there never were any plaintiffs who settled their claims. Until the time the Ponzi scheme collapsed in late October 2009, Bekkedam continued to make material misstatements and omissions to his advisory clients and other prospective investors to induce them to invest in the Banyon Fund. At that time, Banyon investors had received approximately $2 million in interest payments, with their principal investment lost in the Ponzi scheme."
The SEC seeks disgorgement and penalties from Bekkedam, 47. He lived in Villanova, Pa., during the time at issue and now lives in Hobe Sound, Fla., according to the SEC.
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