SEC Charges Unregistered Investment Adviser with Defrauding Puerto Rico Municipality
Litigation Release No. 24975 / December 2, 2020
Securities and Exchange Commission v. Eugenio Garcia Jimenez, Jr., No. 3:20-cv-01682 (D. Puerto Rico, filed December 1, 2020)
In December 1, 2020, the Securities and Exchange Commission charged an unregistered investment adviser based in Orlando, Florida for defrauding the Municipality of Mayagüez, Puerto Rico and misappropriating $7.1 million of taxpayer funds.
According to the SEC's complaint, in 2016, Eugenio Garcia Jimenez, Jr. told municipal officials that he could invest approximately $9 million of the municipality's funds with no risk to principal and earn the city annual returns of approximately 10%. As set forth in the complaint, the city intended to use returns from this investment to fund municipal projects, including the construction of a new trauma center. The complaint alleges that Garcia falsified documents, including bank correspondence and brokerage opening documents, to convince municipal officials to entrust him with the municipality's funds. As alleged in the complaint, instead of executing an investment strategy designed to generate the promised returns, Garcia purchased U.S. Treasury notes, immediately took out a margin loan pledging the notes as collateral and, over a period of six months, misappropriated $7.1 million by transferring funds to himself, entities he controlled, and his associates.
The SEC's complaint charged the defendant with violating Section 17(a) of the Securities Act of 1933, Section 10(b) and of the Securities Exchange Act of 1934 ("Exchange Act") and rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940 ("Advisers Act"). The SEC seeks permanent injunctive relief, disgorgement of allegedly ill-gotten gains plus prejudgment interest, and civil penalties.
The SEC's investigation, which is continuing, is being conducted by Sean M. O'Neill and supervised by Jason R. Berkowitz and Glenn S. Gordon in the Miami Regional Office, and with the assistance of Paul N. Anderson, Jason P. Haggar, and Zerubbabel A. Johnson of the SEC's Washington, D.C. office. The SEC's litigation will be led by Stephanie N. Moot and Mr. O'Neill, and supervised by Andrew O. Schiff.