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Sunday, June 23, 2024 | Back issues
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Toothlessness Of U.S. Financial Regulators|Shown in Alleged $34 Million Ponzi Scheme

ORLANDO (CN) - A chiropractor, six cronies and an investment firm duped investors out of $34 million by bankrupting two hedge funds and skimming more than $16 million off the top, the SEC says. The men "looted and bankrupted the hedge funds by steering millions of dollars to themselves," the SEC says in a complaint that reveals the toothlessness of U.S. financial regulators.

Defendants Robert Buckhannon, Terry Rawstern, Dale St. Jean and Gregory Tindall were the managing members of the two Bradenton, Fla.-based hedge funds, Imperium and Vestium.

With defendants Richard Mittasch, Christopher Paganes, Glenn Barikmo and Imperium Investment Advisors, the gang "commingled investor money from three separate offerings and then looted and bankrupted the hedge funds by steering millions of dollars to themselves," the SEC says.

Along the way, the men "took more than $1.3 million in profit-based feed and compensation to which they were not entitled," and "steered more than $15 million into loans and other deals with companies in which they had undisclosed financial interests," the complaint states.

"Finally, Buckhannon, St. Jean, Tindall and the other defendants misappropriated and took unauthorized, undisclosed loans from investor funds," according to the complaint.

The men misrepresented and looted the (nonparties) Arcanum and Vestium Equity [hedge] Funds with help from Imperium Investment Advisors, the SEC says.

Lead defendant Buckhannon, 49, a Las Vegas chiropractor, was CEO of Vestium Management Group, which managed the collapsed hedge fund, and a managing member of Arcanum.

Rawstern, 61, of Bradenton, was a managing member of Arcanum and Vestium.

St. Jean, 51, a Canadian citizen from Alberta, was a managing member of Arcanum and Vestium, and is the principal of Transcap Corp., "a Canadian investment company that received millions of dollars from the Funds," the SEC says.

Tindall, 49, also of Alberta, was a managing member of Arcanum and Vestium, and is also a principal of Transcap.

Mittasch, 39, of Plainview, N.Y., "is the CEO of Vestium's trustee, Imperium," the SEC says. He holds securities licenses. "Mittasch was affiliated with Maximum Financial Group Inc., a broker-dealer formerly registered with the Commission. Maximum served as trustee for Vestium and provided various broker-dealer services for Arcanum until the Financial Industry Regulatory Authority ('FINRA') expelled it for anti-money laundering and net capital rule violations," the complaint states.

Paganes, 41, of Clarkston, Mich., also was a managing member of Imperium and holds securities licenses. He was CEO of Maximum, but in August 2009 FINRA permanently barred him "from serving in any principal capacity at a securities firm and suspended him from associating with any securities firm for nine months based on his conduct while he was Maximum's chief compliance officer."

Barikmo, 49, of Garden City, Mich., is a managing member of Imperium, an alumnus of Maximum, and holds securities licenses.

Imperium, based in Mineola, N.Y., was created in August 2008, "the same month FINRA expelled Maximum." Mittasch, Paganes and Barikmo are its three managing members. "Imperium is registered as an investment adviser with the Commission and replaced Maximum as Vestium's trustee in October 2008."

The funds the men managed, or played with, sent at least $12.9 million to Transcap, the SEC says. Much of the 25-page complaint is devoted to recitation of the defendants' alleged misrepresentations to their alleged suckers.

For instance: "The defendants went to great lengths to avoid returning money to Fund investors. To help placate investors who wanted redemptions, the defendants used detailed, color-coded contact sheets to keep track of communications with investors seeking redemptions and other payments from the Funds. These schedules included the date and amount of the requested redemption, the investor's reason for the redemption request, and an assessment of how likely the investor was to take legal action or report the Funds' failure to redeem the money to regulators.

"In a February 24, 2009 email, Buckhannon told the three other managing members, Rawstern, St. Jean and Tindall, that pending investor redemption requests 'can be strung out for a bit' while they pursued other investment opportunities.

"On August 18, 2009, Buckhannon sent a letter to the Funds' investors explaining the Funds lacked the necessary capital to pay investor redemptions. However, the very next day, Buckhannon transferred $2.5 million of Arcanum's funds to Shea Mining."

Buckhannon was a founder and manager of Shea Mining and he and Mittasch were to be its employees and manager (Mittasch) and "receive a share of the business's revenues" (Buckhannon).

The SEC seeks disgorgement and civil penalties and wants the judge to tell the men never to so such a thing again, ever.

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