U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21464 / March 29, 2010
Securities and Exchange Commission v. Enrique F. Villalba, Jr., United States District Court for the Northern District of Ohio, Civil Action No. 5:10-cv-00649-DDD
SEC CHARGES UNREGISTERED INVESTMENT ADVISER FOR DEFRAUDING CLIENTS IN SEVERAL STATES
The Securities and Exchange Commission today filed fraud charges against an unregistered investment adviser for misrepresenting the safety and nature of his investment strategy, and for misappropriating millions of dollars in funds from investors in California, Illinois, Ohio, Tennessee, and Washington.
The SEC's complaint, filed in U.S. District Court in Cleveland, charges Enrique F. Villalba, Jr., 47, of Cuyahoga Falls, Ohio, with misappropriating approximately $6 million of client funds. The complaint alleges that Villalba solicited prospective clients through his former investment advisory business, Money Market Alternative, L.P. and affiliated entities, Money Market Alternative Ltd., Money Market Plus, and Hybrid Money Market Management LLC. The complaint alleges that Villalba touted an investment strategy he developed that he falsely claimed was conservative, relatively risk free and would preserve his clients' principal capital while still earning them returns of 8% to 12% annually. To substantiate the safety of his investment strategy, the complaint alleges that Villalba falsely claimed that he placed stop orders approximately 2% above or below the entry price of the investments. The complaint also alleges that Villalba further enticed prospective clients by assuring them their money would only be used for investments in securities, including S&P 500 Index contracts, treasury bills or interest earning money market accounts, and that his management fees would be limited to between 12% and 15% of the profits he generated on their behalf.
According to the SEC's complaint, from 1996 through June 2009, Villalba attracted over $39 million in client funds, and from 1998 through 2009, Villalba lost, through trading, over $17 million of his clients' money. The SEC's complaint also alleges that Villalba misappropriated client funds by (i) paying over $4.1 million for Villalba's management fees, salary and his company's overhead, (ii) purchasing over $700,000 in real property, (iii) investing over $1.2 million in two start-up coffee businesses Villalba owned, and (iv) making Ponzi-like payments. The complaint further alleges that Villalba, to hide his investment failures and his misappropriation of client funds, prepared and provided his clients with false quarterly accounts statements, which always showed that his clients' accounts had overall increased in value. The complaint also alleges that Villalba provided one investor with falsified brokerage statements using the letterhead of a brokerage firm.
The SEC's complaint charges Villalba with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In addition to a permanent injunction, the complaint seeks disgorgement with prejudgment interest and a civil penalty.
The U.S. Attorney's Office for the Northern District of Ohio filed an information against Villalba in a related criminal action today. The U.S. Commodity Futures Trading Commission (CFTC) also filed a complaint against Villalba today.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Ohio, the Federal Bureau of Investigation, and the CFTC.
See Also: SEC Complaint