U.S. Securities and Exchange Commission
Litigation Release No. 21737 / November 10, 2010
SEC v. JOSEPH PAUL ZADA AND ZADA ENTERPRISES, LLC, Civil Action No. 2:10-cv-14498-DPH-PJK (E.D. Mich., filed November 10, 2010)
The Securities and Exchange Commission today announced that it filed a civil injunctive action against Joseph Paul Zada of Grosse Pointe Shores, Michigan and his company, Zada Enterprises, LLC, accusing them of conducting a fraudulent, unregistered offer and sale of at least $27.5 million in securities.
The SEC’s complaint, filed in U.S. District Court in Detroit, alleges that Zada raised at least $27.5 million from at least 60 investors between January 2006 and August 2009 through the offer and sale 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 alleges that Zada told investors that he would invest their funds in oil-related investments. He also told investors that he had exclusive access to certain oil investments and that he had business contacts in oil-producing countries in the Middle East. Zada also told investors that he had earned substantial returns from prior oil-related investments.
The SEC alleges that Zada’s representations were false and that he never invested any funds in oil-related investments or any other type of investment. According to the SEC’s complaint, Zada was instead conducting a Ponzi scheme, utilizing funds from new investors to pay earlier investors. 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. Examples include approximately $8 million to purchase and improve his personal residences in Grosse Pointe Shores, Michigan and his equestrian facility in Palm Beach County, Florida, $2.3 million to pay personal credit card bills, $505,000 to pay insurance premiums, $494,000 on legal and accounting fees, $417,000 for jewelry, $221,000 to pay taxes, and $103,000 to buy cars.
The SEC’s complaint charges Zada and Zada Enterprises 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 promulgated thereunder. The SEC is seeking a permanent injunction and disgorgement of ill-gotten gains with prejudgment interest, jointly and severally, against Zada and Zada Enterprises and a civil penalty against Zada.
See Also: SEC Complaint