U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22919 / February 5, 2014
Securities and Exchange Commission v. Joseph Paul Zada and Zada Enterprises, LLC, Civil Action No. 2:10-cv-14498-DPH-PJK (E.D. Mich.)
SEC Obtains Final Judgments Against Joseph Paul Zada and Zada Enterprises, LLC
The Securities and Exchange Commission announced today that on January 31, 2014, the Honorable Denise Page Hood of the United States District Court for the Eastern District of Michigan entered final judgments against Joseph Paul Zada and Zada Enterprises, LLC. The final judgments permanently enjoin both defendants from future violations of the antifraud and the securities registration provisions of the federal securities laws and order the payment of $121,657,741 in disgorgement, prejudgment interest, and civil penalties.
In its complaint, the Commission alleged that Zada raised at least $27.5 million from at least 60 investors between January 2006 and August 2009 through the fraudulent offer and sale of unregistered securities in the form of promissory notes. According to the complaint, the promissory notes provided various interest rates ranging from seven to twelve percent per year and Zada told some investors that they would earn as much as 48 percent on their investment. The complaint also alleged that Zada told investors that he would invest their funds in oil-related investments, that he had exclusive access to certain oil investments, that he had business contacts in oil-producing countries in the Middle East, and that he had earned substantial returns from prior oil-related investments. The complaint alleged that Zada’s representations were false and that he never invested any funds in oil-related investments or any other type of investment. Instead, Zada conducted a Ponzi scheme, utilizing funds from new investors to pay earlier investors. Specifically, Zada used approximately $12.4 million to make monthly “interest” and return-of-principal payments to investors. He used all other available funds to pay his personal and other expenses unrelated to any investments.
The final judgments permanently enjoin Zada and Zada Enterprises from violating 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 promulgated thereunder. The Court found the defendants liable, jointly and severally, for disgorgement of $56,571,243 plus prejudgment interest of $8,515,255. The Court also imposed a civil penalty against Zada, pursuant to Section 20(d) of the Securities Act and Section 21(d)(3), of $56,571,243.
Previously, on July 31, 2013, the Court granted the Commission’s Motion for Summary Judgment, finding that both defendants engaged in the conduct alleged in the Commission’s complaint. The Court deferred the entry of final orders against the defendants pending the Commission’s submission of its proposed amounts for disgorgement, prejudgment interest, and civil penalties.
On September 4, 2013, in a parallel criminal action, a grand jury in the United States District Court for the Southern District of Florida indicted Zada on 27 counts, including mail fraud, wire fraud, money laundering, and interstate transportation of stolen property. This matter is scheduled for trial in October 2014. United States v. Joseph Paul Zada, 13-80173-CR (S. D. Fla.).For further information, see Litigation Release Nos. 21737 (November 10, 2010) and 22798 (September 17, 2013).