U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22580 / December 21, 2012
Securities and Exchange Commission v. GLR Capital Management, LLC, GLR Advisors, LLC, John A. Geringer, and Relief Defendant GLR Growth Fund, L.P., Civil Action No. 12-02663
SEC FILES CHARGES AGAINST TWO OTHERS IN NORTHERN CALIFORNIA FUND MANAGER'S $60 MILLION SCHEME
On December 21, 2012, the Securities and Exchange Commission filed additional charges in its case against a Northern California fund manager accused of running a $60 million Ponzi-like scheme.
The SEC previously charged the fund manager, John A. Geringer, with defrauding investors by touting imaginary trading profits instead of reporting the actual trading losses he had incurred. The agency today sought court approval to add charges against Christopher A. Luck, of Scotts Valley, Calif., and Keith E. Rode, of Franklin, Wisc., who along with Geringer were principals of GLR Capital Management LLC, which managed the GLR Growth Fund, L.P.
The SEC alleges that GLR Capital deceived investors into thinking that the fund was earning double-digit returns by investing 75 percent of its assets in highly liquid investments tied to well-known stock indices like the S&P 500, NASDAQ, and Dow Jones. In reality, the fund was heavily invested in two private, illiquid startup companies, and Geringer's trading for years had generated substantial losses. Luck and Rode sat on the boards of directors at both startup companies.
"Luck and Rode knew Geringer had squandered millions of dollars in investor funds and were uniquely positioned to stop the fraud in its tracks," said Marc Fagel, Director of the SEC's San Francisco Regional Office. "Rather than expose Geringer, they instead chose to join forces and pretend it was business as usual, further concealing the fraud from investors."
According to the SEC's amended complaint filed in federal court in San Jose and subject to court approval, Geringer in April 2009 confessed to Luck and Rode that he had been lying to them about the balances in the fund's trading accounts. This alerted Luck and Rode to the fact that contrary to what Geringer had been telling investors, the fund had not been achieving returns of more than 17 percent by investing 75 percent of investor money in the stock market. Instead, the lion's share of investor funds was invested in two private startup technology companies.
The SEC alleges that, despite Geringer's confession, Luck continued to solicit new investors for the fund by touting Geringer's trading ability and providing investors with fraudulent marketing materials claiming that the fund had earned between 17 and 25 percent annual returns in every year of the fund's operation through investments tied to major stock indices. Rode, a certified public accountant, continued to mail account statements to investors that contained grossly inflated cash balances that deceived investors about the fund's liquidity. Several investors made additional investments in the fund and rolled over their investments for additional one-year periods after receiving these fraudulent account statements.
The SEC further alleges that Rode provided investors with account statements that falsely claimed "MEMBER NASD AND SEC APPROVED." The SEC does not "approve" funds or investments in funds, nor was the fund (or any related entity) a member of the NASD (now called the Financial Industry Regulatory Authority - FINRA).
In addition to the allegations in the original complaint against Geringer and the related entities, the SEC's amended complaint alleges Luck and Rode violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The amended complaint also alleges Rode violated Section 26 of the Exchange Act, which prohibits persons from claiming the SEC has passed on the merits of a security. Additionally, the SEC seeks financial penalties, disgorgement of ill-gotten gains, permanent injunctions, and other relief from both Luck and Rode.
The SEC's investigation was conducted by Robert J. Durham and Erin E. Schneider of the San Francisco Regional Office. The SEC's litigation is being led by Sheila O'Callaghan of the San Francisco office.
Separately today, the United States Attorney's Office for the Northern District of California announced that a federal grand jury in San Jose indicted Geringer, Luck, and Rode in connection with their operation of the fund. The SEC thanks the U.S. Attorney's Office, Federal Bureau of Investigation, and FINRA for their assistance in this matter.