U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23093 / September 25, 2014
Securities and Exchange Commission v. Marlon Quan, et al.,, Civil Action No. 11-723-ADM/JSM
Court Imposes Injunctions and Monetary Sanctions of Over $80 Million Against Marlon Quan and His Companies Based On Fraud Verdict
The United States Securities and Exchange Commission announced today that, on September 19, 2014, Judge Ann D. Montgomery, of the U.S. District Court in Minneapolis, Minnesota, issued an Opinion and Order imposing sanctions against defendants Marlon Quan, Acorn Capital Group, LLC ("Acorn"), Stewardship Investment Advisors, LLC ("SIA") and ACG II, LLC ("ACG II"). In the Opinion and Order, Judge Montgomery imposed permanent injunctions against the defendants, and imposed financial sanctions of over $80 million against Marlon Quan and the three other defendants that he controlled.
The Commission's complaint, which was filed in March 2011, alleged that Marlon Quan helped to facilitate the massive fraud of Tom Petters by funneling several hundred million dollars of investor money into the Petters Ponzi scheme. According to the SEC's 2009 complaint against Tom Petters, he sold promissory notes to feeder funds like those controlled by Quan and his firms. Petters used some of the note proceeds to pay returns to earlier investors, diverting the rest of the cash to his own purposes. Petters had promised investors that their money would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to such retailers as Wal-Mart and Costco. In reality, this "purchase order inventory financing" business was merely a Ponzi scheme -- there were no inventory transactions.
The SEC alleged that Quan and his firms (SIA and Acorn) invested hundreds of millions of hedge fund assets with Petters while pocketing tens of millions of dollars in fees. Marlon Quan and his companies falsely assured investors that their money would be protected by various safeguards such as "lock box accounts." The complaint also alleged that when Petters was unable to make payments on investments held by the funds that Quan managed, Quan and his firms concealed Petters's defaults from investors.
The Commission had previously charged Petters and Illinois-based fund manager Gregory M. Bell with fraud, and filed additional charges against Florida-based hedge fund managers Bruce F. Prévost and David W. Harrold for similarly defrauding their investors in connection with investments in the Petters Ponzi scheme. Subsequent to filing the complaint against Marlon Quan and his companies, the SEC also charged James Fry, a Minnesota-based hedge fund manager, with similar misconduct.
After a nine-day trial, on February 11, 2014, the jury returned a verdict for the Commission and against the defendants, finding Marlon Quan and his three companies liable for securities fraud. In her September 19th Opinion and Order, Judge Montgomery permanently enjoined the Marlon Quan, Acorn, SIA and ACG II from violating, or aiding and abetting violations of, Section 17(a)(2) and (3) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Judge Montgomery further ordered that Marlon Quan and the other defendants were liable, jointly and severally, for disgorgement of $80,6213,589 together with prejudgment interest.
The trial team from the Commission's Chicago Regional Office consisted of attorneys John E. Birkenheier, C.J. Kerstetter, Timothy Leiman, Michael Mueller, Senior Accountant Don Ryba, and paralegal Sarah Renardo.