U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20653 / July 23, 2008
Securities and Exchange Commission v. Robert C. Brown, Jr., et al., Case No. CV-08-3517-CW (N.D. Cal. filed July 23, 2008)
SEC Charges Hillsborough, Calif. Investment Adviser With Misappropriating Millions of Dollars From Clients
The Securities and Exchange Commission today filed fraud charges and obtained an emergency court order to stop a Hillsborough, Calif. investment adviser who has misappropriated more than $20 million from investors who were falsely promised that their money would be invested in the stock market.
According to the SEC's complaint, Robert C. Brown, Jr. promised clients that he would invest their money risk-free in stock or options, but instead helped himself to millions of dollars of client money to pay for lavish personal expenses, such as upkeep on his Ferrari, limousine services and shopping trips. The Commission's complaint also alleges that, in a classic Ponzi scheme tactic, Brown often transferred money from new investors to favored clients to create the illusion of profitable trading.
At the SEC's request, the federal court for the Northern District of California issued an order freezing Brown's assets and prohibiting him from, among other things, further transferring or dissipating his clients' assets.
According to the SEC's complaint, since at least 2000 and continuing to the present, Brown (previously of Vallejo, Calif.) offered a variety of investment programs that falsely promised astronomical returns. One program promised, for example, to double investor money in eight months. The SEC alleges that Brown raised more than $20 million, but transferred millions of dollars to himself and his family members for personal use. Only approximately $4 million went to any brokerage account, however it was a personal brokerage account that Brown treated as his own piggy bank.
In order to perpetuate the scheme, the SEC alleges that Brown transferred newly-raised funds to older investors as purported profits on securities trading. The SEC's complaint likewise alleges that Brown provided false account statements to investors that showed their investments were earning the returns he had promised. When Brown failed to repay his clients, he concocted elaborate excuses, blaming delays on "the Patriot Act" while representing that the SEC had "cleared" him of wrongdoing.
Brown and Trebor are charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Eddings, CDC Global, Inc. and Wise Investors Simply Excel, LLC are charged solely as relief defendants. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and monetary penalties, as well as preliminary and emergency relief. The Commission further seeks disgorgement of all investors funds disbursed to relief defendants Eddings, CDC Global, Inc. and Wise Investors Simply Excel, LLC, and an order freezing their assets.