U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23109 / October 10, 2014
Securities and Exchange Commission v. The Estate of Vincent James Saviano and Palmetto Investments LLC, Civil Action No. 14-cv-13902-MOB-MKM (October 9, 2014) (E.D. MI)
The Securities and Exchange Commission today announced an enforcement action against the estate of Vincent James Saviano (Saviano) and his firm Palmetto Investments LLC (Palmetto Investments), alleging that he defrauded advisory clients who invested in a private fund that purportedly executed a day trading program.
The SEC has obtained an emergency temporary restraining order freezing the assets of Saviano's firm and his estate. The SEC also obtained an order placing a Receiver in charge of Palmetto Investments. The court will name an individual as receiver by November 6, 2014.
According to the SEC's complaint filed in U.S. District Court for the Eastern District of Michigan, Saviano ran his business out of his home in Rochester Hills, Michigan, until his recent death. He marketed and operated an investment program that supposedly made money through what he termed "extreme" day trading of stocks. Saviano touted the program as a collective investment pool that individuals could join as "members" so they could split the resulting profits from Saviano's day trading, and he attracted more than 100 clients to invest by claiming it to be a resounding success. He told prospective investors - both orally and in a written prospectus - that the program enjoyed historical returns ranging from 5 to 10 percent per month and never encountered a monthly loss. Saviano and Palmetto Investments reassured investors that the program was receiving investment advice from an established investment adviser registered with the SEC. Based on these representations, Saviano was able to raise at least $2 million for the day trading program.
The SEC alleges that in reality, the program was an unmitigated failure. Saviano's day trading consistently lost money rather than generating the consistent monthly gains that he advertised. Saviano kept his massive trading losses hidden from investors, routinely reporting extraordinary gains in monthly and quarterly performance statements and falsely telling clients their principal remained intact. Meanwhile Saviano did not seek any investment advice from a registered investment adviser as he suffered the massive undisclosed trading losses, which during a 45-month period amounted to approximately 81 percent of the money invested with him. Immediately before his death, Saviano admitted to a select group of investors that he also misappropriated an unidentified portion of investor funds to feed his gambling habit.
The SEC has brought this enforcement action against Mr. Saviano's estate and Palmetto Investments to secure investor funds that remain in their names before the assets are dissipated and investors are further harmed. The SEC is seeking disgorgement of funds in the possession of the estate or the firm as a result of the securities fraud so any remaining funds can be returned to investors who were victims of the scheme.
The SEC's complaint charges that Saviano and Palmetto Investments violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint seeks final relief in the form of a permanent injunction against Palmetto Investments and disgorgement and prejudgment interest from both the Saviano estate and Palmetto Investments.