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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21191 / August 31, 2009

Securities and Exchange Commission v. David A. Souza and D.A. Souza Investments, LLC, Case No. 2:09-cv-02421-FCD-KJM (E.D. Cal. filed August 28, 2009)

SEC CHARGES NORTHERN CALIFORNIA MAN FOR INVESTMENT SCHEME TARGETING RELIGIOUS COMMUNITY

The Securities and Exchange Commission on Friday charged David A. Souza and his company, D.A. Souza Investments, LLC for conducting a fraudulent investment scheme that targeted a Redding, California church community. In a nine-month period during 2007 and 2008, according to the SEC's complaint, Souza raised more than $1 million from approximately 28 investors by touting his supposedly phenomenal skill in investing. Souza allegedly took advantage of investors' trust by appealing to their religious faith with slogans such as "Where Business Is Moral and the Miraculous Is Routine."

In reality, the SEC's complaint alleges, Souza never invested any of the money he received from investors. Instead, he diverted most of the investors' money to expenditures designed to create the false appearance of a successful business operation. Souza used another portion of the money to pay certain investors fictitious high returns in the style of a Ponzi scheme, and he used the remainder to pay his personal living expenses.

The SEC's complaint, filed in the U.S. District Court for the Eastern District of California in Sacramento, alleges that Souza told investors that their money would be pooled together and invested in stocks or business ventures. Souza convinced individuals to invest with him by professing that he had achieved remarkable rates of return on his past investments. According to the complaint, one prospectus Souza distributed showed purported annualized returns of 158 percent. The supposed returns were entirely fictional, as Souza had no prior investment experience, and he never invested any of the money he received.

The complaint further alleges that rather than investing the money as he had represented to investors, Souza spent it on items that were neither disclosed to nor authorized by investors. For example, Souza spent approximately $100,000 to rent office space and to supply it with luxurious furniture and computers; he also used additional investor funds for his personal living expenses, including dental and optical expenses, clothing, and groceries. The complaint further alleges that Souza distributed approximately $230,000 back to certain investors, much of it as purported dividend payments as in a Ponzi scheme. Seeing these purported "returns" caused investors to give Souza additional funds, the complaint charges.

The SEC's complaint charges Souza and D.A. Souza Investments, LLC with violations of the antifraud and registration provisions of the federal securities laws under Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and as to Souza, Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint seeks civil injunctive relief and disgorgement of ill-gotten gains from each defendant, and civil penalties from Souza.

The Commission acknowledges the assistance of the City of Redding, California Police Department's Financial Crimes Unit in this matter.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2009/lr21191.htm


Modified: 08/31/2009