Two Attorneys Accused |of $13M Escrow Scam

     (CN) — The SEC claims in court that two attorneys worked with a felon’s sham company to use clients’ escrow money for risky investments and personal use.
     Jay Mac Rust and Christopher Brenner are accused of collecting $13.8 million acting as escrow agents between their clients and Atlantic Rim Funding, a purported loan company run by a convicted felon and repeat securities law violator.
     A 35-page complaint filed Friday by the U.S. Securities and Exchange Commission (SEC) claims that Rust and Brenner worked with a person named as “Individual X” to “help defraud 29 small business owners of deposits they made in purported escrow accounts.”
     “Defendants led these small business owners to believe that their escrow deposits would be used to help secure small business loans through Atlantic in amounts equaling approximately ten times the amounts deposited. In all, these unwitting victims deposited approximately $13.8 million with defendants as escrow agents from approximately December 2010 to March 2012,” the complaint states. “Defendants misappropriated significant portions of the funds entrusted to them, and commandeered the remainder for their own undisclosed trading in speculative securities derivatives.”
     Rust and Brenner falsely told clients that they would use escrowed money to buy “safe and liquid” securities before Atlantic “leveraged” the stocks to get clients commercial loans that were 10 times the amount of their deposits, according to the SEC.
     “Each intended to, and did, secretly misappropriate some portion of his escrow clients’ deposits to pay himself, Individual X, and others in amounts totaling more than $662,000 in the case of Rust and at least $595,000 in the case of Brenner,” the lawsuit states. “With respect to client money that defendants did not misappropriate, each defendant sought to maximize his own return by investing in highly speculative and risky securities, contrary to the assurances each had made to his clients.”
     Atlantic never got a single loan for Rust and Brenner’s escrow clients, the SEC claims. The agency says that, when clients began demanding their money back, the two attorneys “secretly began using deposits from newly-recruited escrow clients to repay earlier escrow clients who had demanded refunds.”
     The SEC says Rust and Brenner’s clients lost more than $6 million in total. The agency seeks an injunction against the two attorneys, disgorgement of ill-gotten profits and penalties.
     Individual X is currently serving a 20-year prison sentence in California, according to court records.

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