U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23626 / August 24, 2016
Securities and Exchange Commission v. Secured Income Reserve, Inc. et al., Civil Action 16-cv-81490 (S.D. Fla., filed August 24, 2016)
SEC Charges Secured Income Reserve, Inc. and Former Officers with Fraud
The Securities and Exchange Commission today filed fraud charges against Secured Income Reserve, Inc. and three of its former officers alleging that Secured, Ilona A. Mandelbaum of Palm Beach Gardens, Fla., David A. Zimmerman of Boca Raton, Fla., and Matthew H. Sage of West Palm Beach, Fla. defrauded investors when they raised $1.45 million in offerings of Secured shares.
The SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Secured and Mandelbaum, Secured's former President and CEO, made material misrepresentations and omitted material facts in Secured's Private Placement Memorandum (PPM) concerning the use of investor proceeds, the SEC-related disciplinary histories of the former officers, and Zimmerman's retention and compensation. Mandelbaum, Zimmerman and Sage each previously consented to judgments in SEC cases charging them with securities laws violations. The complaint alleges that Sage, Secured's former Secretary, Treasurer and COO, aided and abetted Secured's and Mandelbaum's misrepresentations and omissions concerning the officers' backgrounds by drafting that portion of the PPM. The complaint also alleges that Secured and Mandelbaum engaged in a scheme to defraud investors through the misuse of Secured investor proceeds, including by funneling $131,000 of investor proceeds to Mandelbaum's daughter, Jennifer Austin of Palm Beach Gardens, FL, towards the purchase of a home. The complaint alleges further that Sage aided and abetted Secured's and Mandelbaum's misuse of investor proceeds by approving the diversion of Secured investor funds to HSC Holdings, LLC (HSC), an entity controlled by Mandelbaum, and by using investor proceeds to fund the operations of another entity, Sarben Holdings, Inc. The complaint also alleges that Zimmerman, Secured's former Vice President of Investor Relations, made misrepresentations and omissions to Secured investors regarding the risks of investing in Secured, engaged in a scheme to defraud investors in connection with the sale of approximately $1 million in shares in another company, Filewarden.com Corp, and that Zimmerman and Tamda Marketing, Inc. ("Tamda"), Zimmerman's marketing company, acted as unregistered brokers.
The SEC's complaint alleges that Secured, Mandelbaum and Zimmerman violated the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; that Sage aided and abetted Secured's and Mandelbaum's violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; that Zimmerman and Tamda violated Section 15(a) of the Exchange Act; and that Secured and Mandelbaum aided and abetted Zimmerman's and Tamda's violations of Section 15(a) of the Exchange Act. The SEC also charged Austin and HSC as relief defendants for the sole purpose of recovering investor funds they were not entitled to receive.
Without admitting or denying the allegations in the complaint, Secured, Mandelbaum, Zimmerman, Sage, and Tamda have agreed to settle the charges against them as follows:
- Secured has agreed to pay $588,243 in disgorgement, $55,233.12 in prejudgment interest, and a $775,000 civil penalty.
- Mandelbaum has agreed to pay $392,752 in disgorgement, $36,877.48 in prejudgment interest, and a $320,000 civil penalty.
- Zimmerman has agreed to pay $148,350 in disgorgement, $9,150.88 in prejudgment interest, and a $320,000 civil penalty.
- Sage has agreed pay a $240,000 civil penalty.
- Tamda has agreed to pay $148,350 in disgorgement, $9,150.88 in prejudgment interest, and a $148,350 civil penalty.
- In addition, among other relief, Secured, Mandelbaum, Zimmerman, Sage and Tamda have agreed to permanent injunctions and Mandelbaum, Zimmerman and Sage have agreed to conduct based injunctions and bars prohibiting them from serving as officers and directors of a public company.
HSC, a relief defendant in the action, consented to settle the charges against it and has agreed to pay $296,100 in disgorgement and $27,802.36 in prejudgment interest.
The settlements, which include provisions that certain defendants and relief defendant HSC are jointly and severally liable for disgorgement and prejudgment interest, are subject to court approval.
SEC Miami Regional office staff attorney Jonathan M. Grant conducted the investigation under the supervision of Assistant Regional Director Eric R. Busto. Christine Nestor and Russell Koonin will lead the SEC's remaining litigation efforts against relief defendant Jennifer Austin.