SEC Obtains Final Judgment Against Investment Adviser Who Defrauded Senior Citizens

Litigation Release No. 24950 / October 22, 2020

Securities and Exchange Commission v. Paul Horton Smith, Sr.; Northstar Communications, LLC; Planning Services, Inc.; and eGate, LLC, Civil Action No. 2:20-cv-01056 PA-SHKx (C.D. Cal. filed May 19, 2020)

On October 19, 2020, the Securities and Exchange Commission obtained a final judgment against California-registered investment adviser representative Paul Horton Smith, Sr., his companies Northstar Communications, LLC and Planning Services, Inc., and his California-registered investment adviser eGate, LLC for perpetrating an investment fraud that targeted retirees and pre-retirees in Southern California.

The SEC's complaint, filed on May 19, 2020, alleged that Smith and his entities defrauded at least 35 investors out of more than $5.6 million by falsely claiming that Smith and Northstar would pay investors guaranteed interest payments based on investments in specified products. The complaint alleged that they failed to invest the funds raised as promised and instead used new investor funds to pay investor returns in a Ponzi-like fashion.

Smith was previously charged in a parallel criminal action and is currently awaiting trial.

The final judgment permanently enjoins all four defendants from violating the antifraud provisions of 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 enjoins Smith and eGate from violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The judgment also orders the defendants, jointly and severally, to pay disgorgement of $4,238,400 in ill-gotten gains plus prejudgment interest of $383,059, and orders Smith to pay a civil penalty of $4,238,400.

The SEC's investigation was led by David S. Brown, with assistance from Dora Zaldivar, and was supervised by Finola H. Manvelian in the SEC's Los Angeles Regional Office.  The litigation was led by John B. Bulgozdy and supervised by Amy Jane Longo. The SEC appreciates the assistance of the U.S. Attorney's Office for the Central District of California and the Federal Bureau of Investigation.

The SEC's Office of Investor Education and Advocacy has issued investor alerts on frauds targeting seniors and Ponzi scheme red flags. Additional information is available on Investor.gov and SEC.gov.