U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20943 / March 11, 2009
Securities and Exchange Commission v. Anthony Vassallo, Kenneth Kenitzer, and Equity Investment Management and Trading, Inc., Case No. 2:09-CV-00665-LKK-DAD (E.D. Cal. filed March 11, 2009)
SEC Charges Two Northern California Residents in $40 Million Ponzi Scheme
The Securities and Exchange Commission today charged Northern California residents Anthony Vassallo and Kenneth Kenitzer for orchestrating a multi-million dollar investment fraud. Vassallo agreed to a court order freezing his assets. The SEC is seeking an emergency court order to also freeze the assets of Vassallo's company, Equity Investment Management and Trading, Inc. (EIMT).
According to the SEC's complaint, Vassallo and Kenitzer raised more than $40 million from about 150 investors from approximately May 2004 to November 2008. Vassallo told investors, many of whom he met through his church, that he had a proprietary computer software program that allowed him to buy and sell stock options and generate returns of 3.5 percent per month with little risk of loss. The SEC alleges that Vassallo and Kenitzer instead used investors' money for unauthorized purposes, including a variety of other schemes never disclosed to investors.
The SEC's complaint, filed in federal court in Sacramento, alleges that Vassallo told investors that their money was being invested in securities pursuant to a proprietary trading strategy that promised high returns with minimal risk. From September 2007 through approximately November 2008, Kenitzer, who participated in EIMT's day-to-day operations, posted false trading results on the company's Web site and distributed phony investment reports to investors that led them to believe EIMT was achieving consistent, positive returns. According to the SEC's complaint, EIMT actually had not conducted any stock trades since at least September 2007, when its brokerage firm terminated Vassallo's trading privileges. The SEC alleges that Vassallo and Kenitzer kept the scheme going by using money raised from new investors to pay earlier investors, a classic hallmark of a Ponzi scheme.
The SEC's complaint charges Vassallo, Kenitzer and EIMT with violations of the antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Additionally, the SEC's complaint charges Vassallo with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition to an emergency order freezing EIMT's assets, the SEC seeks injunctive relief, disgorgement of defendants' ill-gotten gains, and financial penalties.
The SEC acknowledges the assistance of the United States Attorney's Office, Federal Bureau of Investigation, and Internal Revenue Service.