U.S. Securities and Exchange Commission
Litigation Release No. 22077 / August 31, 2011
Securities and Exchange Commission v. James Davis Risher and Daniel Joseph Sebastian, Civil Action No. 6:11-cv-1440-Orl-18GJK (M.D. Fla., filed August 29, 2011).
The Securities and Exchange Commission announced an enforcement action filed on August 29, 2011 against James Davis Risher, a convicted felon, and Daniel Joseph Sebastian, a former insurance broker, charging them with violations of the antifraud provisions of the federal securities laws. From no later than January 2007 until July 2010, Risher and Sebastian operated a Ponzi scheme through which they raised approximately $22 million from more than 100 investors in the United States and Canada for a purported private equity fund which they marketed under the names Managed Capital Fund, Safe Harbor Private Equity Fund, and Preservation of Principal Fund (collectively, the Fund).
The SEC’s complaint, filed in the United States District Court for the Middle District of Florida, charges Risher and Sebastian with making several material misrepresentations and omissions to investors in the offer and sale of unregistered securities. The SEC alleges they told investors the Fund earned annual returns ranging from 14% to 124% by investing in public equity securities through a FINRA-regulated broker-dealer and sent investors false account statements indicating such returns. In reality, only a fraction of investor funds were invested in equities through a broker-dealer. Instead, Risher misappropriated the majority of the money for personal use and paid Sebastian large performance and management fees. Furthermore, Risher represented that the Fund was registered in Bermuda and both he and Sebastian falsely claimed that the Fund was audited annually by a Bermudan auditor. Sebastian further misrepresented to investors that their principal would be guaranteed against loss.
The SEC’s enforcement action charges Risher and Sebastian with 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 (Exchange Act) and Rule 10b-5 thereunder. The SEC’s enforcement action further charges Risher with violating Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder, and Sebastian with aiding and abetting Risher’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions, disgorgement, and financial penalties against Risher and Sebastian.
The U.S. Attorney’s Office for the Middle District of Florida, which conducted a parallel investigation of this matter, has also filed charges against Risher. The SEC acknowledges assistance from the U.S. Attorney’s Office for the Middle District of Florida, the Federal Bureau of Investigation, the Internal Revenue Service, the United States Postal Inspector Service, the Florida Department of Law Enforcement, and the Florida Office of Financial Regulation.