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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23824 / May 04, 2017

Securities and Exchange Commission v. William R. Schantz III and Verto Capital Management LLC, Civil Action No. 17-cv-03115 (D.N.J.) (May 4, 2017)

Firm, CEO Settle Charges in Ponzi-Like Scheme Involving Life Settlements

On May 4, 2017, the Securities and Exchange Commission filed a complaint against New Jersey-based Verto Capital Management LLC and its CEO, William R. Schantz III, of Moorestown, New Jersey. The defendants have agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier investors in Ponzi-like fashion and tapped investor funds for the CEO's personal use.

The complaint, filed in the United States District Court for the District of New Jersey, alleges that from at least November 2013 through at least November 2015, Verto Capital and Schantz raised approximately $12.5 million selling promissory notes to purportedly fund Verto Capital's purchase and sale of life settlements, which are life insurance policies sold in the secondary market. The SEC alleges that they misrepresented to investors that Verto Capital was a profitable company and investor funds would be used for general working capital purposes. Verto Capital and other Schantz businesses had been unprofitable for several years, according to the SEC's complaint, and Schantz resorted to taking disproportionately large distributions of investor funds for himself and using new investor money to repay earlier investors.

Verto Capital and Schantz also allegedly made misrepresentations to investors about the safety of the notes and collateral underlying them. The SEC alleges that the promissory notes were primarily sold through a group of insurance brokers in Texas, and religious investors were targeted.

A Fair Fund will be created to return money collected in the settlement to harmed investors. Schantz and Verto Capital agreed to pay disgorgement of $3,433,666 plus interest of $124,851 and a penalty of $600,000. Without admitting or denying the allegations, they consented to permanent injunctions against further violations of Section 17(a)(2) and (3) and Section 5 of the Securities Act of 1933. Schantz further agreed to be enjoined from selling any promissory notes. The settlement is subject to court approval.

The SEC's investigation, which is continuing, is being conducted by Jennifer K. Vakiener, Vincent T. Hull, Christopher Mele, Thomas Feretic, and Steven G. Rawlings in the New York office. The case is being supervised by Lara S. Mehraban. The SEC examination that led to the investigation was conducted by Steven C. Vitulano, Terrence P. Bohan, and Edward J. Janowsky in the New York office.

SEC Complaint

 

https://www.sec.gov/litigation/litreleases/2017/lr23824.htm


Modified: 05/04/2017