U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21500 / April 23, 2010
U. S. Securities and Exchange Commission v. Onyx Capital Advisors, LLC, Roy Dixon, Jr. and Michael A. Farr, Civil Action No. 2:10-cv-11633-DPH-MKM in the United States District Court for the Eastern District of Michigan (filed April 22, 2010).
SEC CHARGES PRIVATE EQUITY FIRM AND MONEY MANAGER FOR DEFRAUDING DETROIT-AREA PUBLIC PENSION FUNDS
On April 22, 2010, the Securities and Exchange Commission charged a private equity firm, its founder and his friend with participating in a fraudulent scheme through which they stole more than $3 million invested by three Detroit-area public pension funds. Today, the Honorable Denise Page Hood of the United States District Court for the Eastern District of Michigan granted the SEC's request for a temporary restraining order and asset freeze against all three Defendants and set a hearing on the SEC's Motion for a Preliminary Injunction for Tuesday, May 11, 2010.
The SEC's complaint alleges that Detroit-based Onyx Capital Advisors, LLC and its founder Roy Dixon, Jr., recently of Atlanta, Georgia, raised approximately $23.8 million from three public pension funds for a start-up private equity fund and then illegally withdrew money invested by the pension funds to cover personal and other business expenses. Assisting in the scheme was Dixon's friend Michael A. Farr, also of Atlanta, Georgia, who controls three companies in which the Onyx Fund invested millions of dollars.
In the complaint, the SEC alleges that shortly after the three pension funds made their first contributions to the Onyx Fund in early 2007, Dixon and Onyx Capital began illegally siphoning money. Dixon and Onyx Capital took more than $2.06 million from the Onyx Fund under the guise of excess or advanced management fees and Farr assisted in diverting nearly $1.05 million more from the Onyx Fund's purported investments in the companies that he controlled.
According to the SEC's complaint, Onyx Capital invested more than $15 million from the Onyx fund in three related entities controlled by Farr — Second Chance Motors, SCM Credit LLC, and SCM Finance LLC. Farr diverted a portion of the pension fund investments in Farr's companies to 1097 Sea Jay, LLC, another entity that Farr controlled. Farr then withdrew large sums of cash and provided most of it to Dixon while retaining at least $229,000 for his own benefit. Farr also used Sea Jay's bank accounts to make at least $522,000 in payments to construction companies performing work on Dixon's house in Atlanta.
The SEC further alleges that Dixon and Onyx Capital made numerous false and misleading statements to Onyx Capital's public pension fund clients. For example, one pension fund had concerns about Dixon's inexperience in private equity. To allay these concerns and convince the pension fund to fund the investment, Dixon sent a letter falsely stating that a purported joint owner of Onyx Capital with substantial experience evaluating private equity investments would devote all of his efforts to the Onyx Fund. The letter contained a forged signature of that individual, who had reviewed certain investment opportunities for the Onyx Fund during his spare time but has never owned or been employed by Onyx Capital. He instead has been working full-time for another company since 1996.
The SEC's complaint alleges that Dixon and Onyx Capital violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder, and that Farr aided and abetted Dixon's and Onyx Capital's violations of Sections 206(1) and 206(2) of the Investment Advisers Act. In its complaint, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains and civil monetary penalties.