U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20983 /April 1, 2009
Securities and Exchange Commission v. Edward T. Stein, et. al., Civil Action No. 09-3125 (GEL)(SDNY)
SEC Obtains Emergency Asset Freeze to Halt Multimillion Dollar Ponzi Scheme
The Securities and Exchange Commission today charged Edward T. Stein with securities fraud and froze his assets to halt an ongoing alleged Ponzi scheme. The Court also froze the assets of seven entities, which Stein controlled, and the Commission charged as relief defendants, including investment funds Gemini Fund I, L.P. (Gemini) and DISP LLC (DISP), as well as, Prima Capital Management Corp. (Prima), Edward T. Stein Associates, Ltd., Vibrant Capital Corp. (Vibrant), Vibrant Capital Funding I LLC, and G&C Partnership Joint Venture.
In its action, filed in federal court in Manhattan, the Commission alleges that Stein is operating a Ponzi scheme and has moved more than $55 million in investor funds through the accounts of his investment funds, Gemini and DISP. The complaint alleges that Stein made material misrepresentations and omissions to induce individuals to invest in Gemini and DISP and then deceived investors by producing false statements reflecting healthy returns over the life of their investments. The Commission further alleges that in the past several months, Stein has turned to stealing client funds to keep his scheme going. Beginning in May 2008 and continuing into March 2009, Stein converted millions of dollars from a single client to pay off investors and pay personal expenses, including the purchase of a million dollar Manhattan condominium.
The Commission alleged the following. In 1992, Stein set up Gemini as an investment fund, which he claimed was a feeder fund to other investment vehicles engaging in arbitrage and hedge trading. Instead, the primary investment Stein made with Gemini money was in Detour Media Group, Inc., an entity that published a fashion magazine called Detour. In a petition signed by Stein as its President, Detour Media filed for protection under Chapter 7 of the bankruptcy laws in 2003. However, Stein continued to solicit investments in Gemini and has continued to issue statements to his investors reflecting healthy returns over the life of their investments.
In 2002, Stein set up DISP as an investment fund to invest in life settlement policies. While DISP did buy some life insurance policies with investor funds, it has not bought any since at least 2004 and Stein transferred the portfolio of policies DISP held to Vibrant, a Stein controlled entity, without disclosing the transfer to existing or prospective DISP investors. Stein also used DISP investor funds to pay off Gemini investors.
The Commission's complaint charges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1), 206(2) and 206(4) the Investment Advisers Act of 1940.
Judge Lynch of the U.S. District Court for the Southern District of New York granted the Commission's request for an order temporarily restraining Stein, freezing his assets and those of the relief defendants, and ordering accountings of Stein and the relief defendants. The SEC's complaint also seeks a final judgment permanently enjoining Stein from future violations of the federal securities laws, ordering him to pay financial penalties and to disgorge ill-gotten gains with prejudgment interest.
The United States Attorney's Office for the Eastern District of New York (USAO) announced criminal charges against Stein.
The Commission's investigation is ongoing. The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York in the investigation of this matter.