SEC Halts Texas-Based Ponzi Scheme Targeting Veterans
Litigation Release No. 25293 / December 22, 2021
Securities and Exchange Commission v. Marco "Sully" Perez and Permian Basin Proppants, Inc., No. 7:21-CV-00238 (W.D. Tex. filed December 14, 2021)
The Securities and Exchange Commission announced that it has filed an emergency action to shut down a multi-million-dollar Ponzi scheme being perpetrated by Marco "Sully" Perez targeting retirement funds held by veterans and other investors. The SEC also charged Permian Basin Proppants, Inc., a Texas company that Perez controls as president and used to carry out the scheme. On December 14, 2021, the U.S. District Court for the Western District of Texas issued a temporary restraining order halting the defendants' ongoing offering, freezing the defendants' assets, and granting other emergency relief.
The SEC's complaint, filed under seal on December 14, 2021, alleges that Perez offered investments in Permian, which he claimed bought sand for use in oil and gas drilling. Perez allegedly told investors that Permian would use their funds to buy sand that would then be sold to drillers at a markup, generating guaranteed returns ranging from 10% to 100% in as little as 30 days. To further gain prospective investors' trust, especially current and former military members, Perez allegedly touted his veteran status as part of his investment pitch. As the complaint alleges, Perez used these tactics to raise at least $9.25 million from approximately 265 investors.
According to the complaint, however, Perez's investment program was fraudulent because Permian used little, if any, investor funds for acquiring sand and did not have the agreements to sell sand to drillers as it represented. Instead, the SEC alleges that Perez used investor funds to make Ponzi payments and to pay personal expenses, including exotic cars, private-jet travel, jewelry, gambling, and his wedding aboard the Queen Mary. The SEC also alleges that Perez gave investors false account statements that he had fabricated to show phony sand transactions and non-existent investment returns.
The SEC's complaint charges Perez and Permian with violating the antifraud and securities registration provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, civil penalties, and disgorgement of ill-gotten gains, with prejudgment interest, against Perez and Permian.
The court has scheduled a hearing for January 3, 2022 on the SEC's request for the entry of a preliminary injunction.
Many fraudsters take advantage of the trust that having something in common creates, such as being a military veteran. This is called "affinity" fraud. The SEC's Office of Investor Education and Advocacy has issued an Investor Bulletin with tips on how investors can spot and avoid affinity fraud in their communities.
The SEC's investigation was conducted by Catherine Floyd and Carol Stumbaugh and was supervised by Timothy McCole and Eric Werner of the Fort Worth Regional Office. The litigation is being conducted by Nikolay Vydashenko and supervised by B. David Fraser.