U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22162 / November 18, 2011
Securities and Exchange Commission v. Garfield Taylor, Inc., et al., Case No. 1:11CV02054 (D.D.C.)
SEC CHARGES PERPETRATOR OF WASHINGTON-AREA PONZI SCHEME
On November 18, 2011, the Securities and Exchange Commission charged a Bethesda, Md. man and several family members and friends with conducting a multi-million dollar Ponzi scheme targeting investors in the Washington D.C. metropolitan area.
The SEC alleges that Garfield M. Taylor lured primarily middle-class residents in his community with little to no investing experience to invest in promissory notes issued by his two companies that engaged in purportedly low-risk options trading. Taylor urged investors to refinance their homes and use any available means to invest, including their personal savings and retirement funds. The SEC alleges that he promised returns as high as 20 percent per year and falsely assured investors that their investments would be protected by a “reserve account” or that he would employ a “covered call” trading strategy that would not touch the principal amount of their investment.
According to the SEC’s complaint filed in federal court in Washington D.C., Taylor and his companies instead engaged in very high-risk, speculative options trading and suffered massive losses. Taylor relied upon money from new investors to pay returns to earlier investors in typical Ponzi scheme fashion. The SEC’s complaint also alleges that he siphoned off $5 million in investor funds to pay family and friends and for other personal uses, including $73,000 to the private school his children attended.
The SEC alleges that the Ponzi scheme defrauded more than $27 million from approximately 130 investors from 2005 to 2010. The scheme ultimately collapsed in the fall of 2010 when the companies’ accounts were depleted by the trading losses and interest payments to investors.
The SEC’s complaint charged Taylor’s companies Garfield Taylor Inc. and Gibraltar Asset Management Group LLC – which were not registered with the SEC – as well as five collaborators in Taylor’s scheme:
According to the SEC’s complaint, Garfield Taylor and the others jointly prepared and finalized a Gibraltar PowerPoint presentation for prospective investors that was riddled with false and misleading statements. They misrepresented the nature of the company’s options trading strategy, the anticipated rate of return, the protections offered by its outside accountant, and the overall level of risk involved in an investment with Gibraltar. They pitched the PowerPoint presentation to potential institutional investors and charitable organizations, including a Washington D.C.-based children’s charity and a Baptist church in Maryland. Garfield Taylor went so far as to provide the Baptist church with a fake “letter of recommendation” from Charles Schwab as he pitched the investment opportunity.
The SEC alleges that in order to maintain a steady flow of new investor money, Garfield Taylor induced current investors and others including King and Mitchell to solicit and refer new investors to him in exchange for commission payments based on the amounts invested. Garfield Taylor, who was not a licensed securities broker, persuaded several individuals to give him online access to their personal brokerage accounts so he could place trades and share in any profits generated.
The SEC’s complaint charges Garfield Taylor, Inc., Gibraltar Asset Management Group LLC, Garfield Taylor, Dalley, King, and Randolph Taylor with violations of Sections 17(a) of the Securities Act of 1933 (“Securities Act”). The SEC’s complaint also charges those defendants and Maurice Taylor with violating or aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. It also alleges that Garfield Taylor violated Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC’s complaint also charges Garfield Taylor, Inc., Gibraltar Asset Management Group, LLC, and Garfield Taylor with violations of Sections 5(a) and 5(c) of the Securities Act. The SEC’s complaint also alleges that Garfield Taylor, King, and Mitchell violated Section 15(a) of the Exchange Act. The SEC seeks a judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay penalties and disgorgement with prejudgment interest. The SEC also named three companies belonging to Randolph Taylor, Dalley, King, and Mitchell as relief defendants for the purposes of seeking disgorgement with prejudgment interest of investor funds.