U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23987 / November 14, 2017
Securities and Exchange Commission v. The End of the Rainbow Partners, L.L.C., and The Estate of Michael F. Anderson, Defendants, and Carolyn M. Anderson, individually, as the Personal Representative of the Estate of Michael F. Anderson, and as trustee for the Michael Anderson Trust and a trust for the benefit of her minor children, The End of the Rainbow Foundation, Inc., Seaoma Consulting Company, and Bighorn Wealth Fund, L.P., Relief Defendants, Civil Action No. 1:17-cv-02670 (MSK) (D. Colo. filed November 8, 2017)
SEC Charges Vail, Colorado-Based Perpetrators of Offering Fraud and Freezes Assets
The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against a Vail, Colorado-based company and the estate of its deceased principal for defrauding investors out of millions of dollars.
The SEC alleges that Michael F. Anderson and his company, The End of the Rainbow Partners, L.L.C. (Rainbow Partners), raised approximately $5.3 million from investors who were told that Anderson was a retired, successful hedge fund manager who intended to day trade their funds using a proprietary algorithm. Claiming he no longer needed income and instead wanted to help friends and charitable causes, Mr. Anderson falsely told investors that he would fund his wife's charitable organization for abused women and children, The End of the Rainbow Foundation, Inc. (Rainbow Foundation), with up to 20% of his trading profits, and divide the remaining profits among investors.
According to the SEC's complaint filed last week in the U.S. District Court for the District of Colorado, between March 2014 and February 2017 Rainbow Partners and Anderson misappropriated more than $2.3 million from investors by, among other things, transferring investor funds to Mr. Anderson's wife, Carolyn Anderson, her purported charity, the Rainbow Foundation, a second company owned by Ms. Anderson, Seaoma Consulting Company (Seaoma), and another hedge fund managed by Mr. Anderson, Bighorn Wealth Fund, L.P. (Bighorn). The SEC alleges that the misappropriated funds were used to pay the Andersons' personal expenses, including tax debts, mortgage payments, private school tuition, life insurance premiums, credit card bills, and car payments. According to the complaint, the Rainbow Foundation was a sham entity that never conducted any legitimate business.
In addition to misappropriating investor funds, the SEC alleges that Rainbow Partners and Mr. Anderson incurred substantial trading losses of nearly $600,000 while falsely assuring investors that trading was profitable. To hide these losses, the SEC alleges that Rainbow Partners, through Mr. Anderson, generated and distributed fabricated account statements to investors reflecting non-existent profits and used approximately $1.9 million in investor money to repay other investors in a Ponzi-like scheme. In a sworn affidavit drafted before his death, Anderson admitted to much of the misconduct alleged in the SEC's complaint.
Today, the Honorable Marcia S. Krieger granted the SEC's request for an emergency asset freeze against Defendants Rainbow Partners and the Estate of Michael F. Anderson, and partially granted the SEC's request for an emergency asset freeze against Relief Defendants Carolyn M. Anderson and the Rainbow Foundation. A court hearing regarding the asset freeze has been scheduled for November 21, 2017.
The Commission's complaint alleges that Defendants Rainbow Partners and Mr. Anderson violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that Relief Defendants Carolyn Anderson, Rainbow Foundation, Seaoma, and Bighorn received investor funds misappropriated by Mr. Anderson, and seeks an order finding that the Defendants violated the securities laws, disgorgement of any and all ill-gotten gains from the Defendants and Relief Defendants with prejudgment interest, and an accounting from the relief Defendants.
The SEC's investigation was conducted by Jeffrey Lyons, with assistance from Kerry Matticks, and supervised by Ian Karpel. The SEC's litigation is led by Leslie Hughes, and supervised by Gregory Kasper.