Securities and Exchange Commission v. James C. Tao and Donna Boyd (f/k/a Donna Chen), Civil Action No. 4:17-cv-03678 (S.D. Tex., December 5, 2017)
Litigation Release No. 24003 / December 5, 2017
Financial Adviser Settles Charges for Defrauding Private Equity Fund Investors
The Securities and Exchange Commission today announced that former financial adviser James C. Tao has agreed to settle charges that he defrauded investors in Presidio Venture Capital, a private equity fund he created and managed, by making material misstatements in offering documents and misappropriating investor funds. Tao and his former partner, Donna Boyd (f/k/a Donna Chen), also settled charges for violating broker-dealer registration requirements by soliciting sales of interests in the funds, which were securities not offered by the brokerage firm with which they were associated at the time.
According to the SEC's complaint, filed in the U.S. District Court for the Southern District of Texas, while working as financial advisers associated with a registered investment adviser and broker-dealer, Tao and Boyd formed private equity fund PVC, LLC - which did business as Presidio Venture Capital - in 2013 primarily for the purpose of investing in technology start-ups in the Houston, Texas area. The SEC's complaint alleges that Tao and Boyd raised approximately $860,000 for the fund between January 2013 and July 2016 by soliciting investments from their advisory clients, some of whom were also brokerage clients, and from other personal and business contacts.
The SEC's complaint alleges that Tao falsely claimed investor funds would be held in escrow and returned unless $2.5 million was raised. The complaint further alleges that while some of the money PVC raised was invested in arms-length transactions that fit the fund's stated business model, Tao failed to timely or adequately disclose that the fund was also investing in companies he owned or in which he had a personal stake, which was a clear conflict of interest. In addition, as alleged in the complaint, Tao used investor funds to apply for a loan to increase his interest in the fund, cover other expenses not in line with the use of funds disclosed in PVC's offering materials, and make a Ponzi-style payment by using new investor funds to buy out a disgruntled investor. The complaint also alleges that Tao ignored fund redemption restrictions and bought out Boyd, who severed ties with the fund in 2013, and at least three other investors with cash from the sale of one of PVC's early investments.
The SEC's complaint charges Tao with violating 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), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. It also charges Tao and Boyd with violating Section 15(a) of the Exchange Act. Tao and Boyd have agreed to settle the SEC's charges without admitting or denying the allegations. Tao has agreed to injunctions and to pay disgorgement of $155,970.67, interest of $7,965.65, and a penalty of $150,000.00. Boyd has agreed to an injunction and to pay a $10,000.00 penalty. The settlement is subject to court approval. Both defendants have also agreed to follow-on collateral administrative bars.
The SEC's investigation was conducted by Jennifer R. Turner and Ty S. Martinez and supervised by Jessica B. Magee and Shamoil T. Shipchandler of the Fort Worth Regional Office with assistance from Deborah Shaw, Dale R. Perez, Carole A. Solloway, and Caneka F. Hardon of the Atlanta Regional Office exam staff. The litigation is led by Keefe Bernstein.