U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21641 / September 2, 2010
Securities and Exchange Commission v. Sandra Venetis, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, Civil Action No. 10-CV-4493(JAP)(D.N.J.)
SEC CHARGES NEW JERSEY INVESTMENT ADVISER IN MULTI-MILLION DOLLAR OFFERING FRAUD
The Securities and Exchange Commission announced that is has filed a complaint in the District of New Jersey against Sandra Venetis, a Branchburg, N.J.-based investment adviser and three of her firms, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.
The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.
The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
The complaint alleges that the representations made by Venetis to investors were entirely false and the promissory notes and other offerings were unsupported by any investments, assets, or related revenues. Venetis simply fabricated the names and signatures of "doctors" or forged signatures of other people she claimed were recipients of the loans. Venetis concealed from investors that she used their funds to pay her home mortgage and property taxes, purchase a home for her daughter, finance improvements on a home owned by her brother, pay her own gambling debts, and pay for trips to such destinations as Alaska, Italy, France, India, and the Caribbean.
The complaint charges Venetis, Systematic Financial Associates, Inc., Systematic Financial Services, LLC, and Systematic Financial Services, Inc. with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also charged Venetis and Systematic Financial Associates, Inc. with violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In addition, the SEC's complaint names three relief defendants for the purposes of recovering investor assets now in their possession: Jennifer Venetis (Venetis's daughter); Kevin Persley (Venetis's brother); and Venetis LLC (an entity owned and controlled by Venetis).
Venetis and the entities have agreed to settle the SEC's charges and have consented to all of the relief that the SEC seeks in its complaint, including the entry of a court order enjoining them from future violations of the above provisions of the securities laws, ordering the payment of disgorgement of ill-gotten gains with prejudgment interest, financial penalties, an asset freeze, accountings, and the appointment of an independent monitor. The settlement will defer the determination of the amount of the monetary relief to a later date.
Venetis and Systematic Financial Associates Inc. also agreed to settle related administrative actions by the Commission that will bar Venetis from association with any investment adviser or broker or dealer, and revoke the registration of the firm.