In the Matter of Matthew La Madrid
On March 26, Commission issued an Order Instituting Administrative Proceeding Pursuant to Section 203(f) of the Investment Advisers Act of 1940, and Notice of Hearing (Order) against Matthew La Madrid (La Madrid), based on the entry of a permanent injunction against La Madrid in the civil action entitled Securities and Exchange Commission v. Plus Money, Inc., et al., Civil Action No. 08-CV-0764-MMA (NLS), in the U.S. District Court for the Southern District of California.
In the Order, the Division of Enforcement alleges that on March 3, 2009, the U.S. District Court for the Southern District of California entered a judgment of permanent injunction and other relief by consent against La Madrid, permanently enjoining him from future violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act.
The Division of Enforcement further alleges in the Order that the Commission's complaint in the civil action alleged that La Madrid was the treasurer and president of Plus Money, Inc. (Plus Money), a Nevada corporation; that Plus Money was the investment adviser to and manager of The Premium Return Funds, Nevada-based limited partnerships that operated as purported hedge funds; and that through his control of Plus Money, La Madrid acted as investment adviser for the Premium Return Funds, including making all investment decisions on behalf of the Premium Return Funds. According to the complaint in the civil action, from May 2004 through July 2007, the Premium Return Funds raised approximately $30.6 million from at least 300 investors. La Madrid told investors that he had a lucrative trading strategy involving the purchase and sale of covered call options. La Madrid failed to disclose that trading in the Premium Return Funds brokerage accounts ceased in the Fall of 2007 and that La Madrid dissipated the investor monies held in those accounts through a series of illicit transfers. Specifically, in September and October 2007, La Madrid transferred a total of $7.6 million from the Premium Return Funds' brokerage accounts to Vision Quest Investments, La Madrid's dba. In November 2007, Vision Quest wired $10 million to a third party, Palladium Holding Company; Palladium Holding Company subsequently transferred $5 million to a brokerage account it controlled and began exercising numerous short-sell transactions of Treasury bonds, steadily dissipating the assets in the brokerage account; and Palladium Holding Company dispersed the remainder of the funds received from Vision Quest in a variety of ways having nothing to do with the purchase and sale of covered call options.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide La Madrid an opportunity to dispute the allegations, and to determine what, if any, remedial action is appropriate and in the public interest, pursuant to the Investment Advisers Act of 1940.
The Order requires that an Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. IA-2857; File No. 3-13415)
SEC Halts $68 Million Ponzi Scheme Involving Caribbean-Based Bank and Swiss Affiliate
The Securities and Exchange Commission has obtained an emergency court order halting a $68 million Ponzi scheme involving the sale of fictitious high-yield certificates of deposit (CDs) by Caribbean-based Millennium Bank.
The SEC alleges that the scheme targeted U.S. investors and misled them into believing they were putting their money in supposedly safe and secure CDs that purportedly offered returns that were up to 321 percent higher than legitimate bank-issued CDs. The SEC's complaint alleges that William J. Wise of Raleigh, N.C., and Kristi M. Hoegel of Napa, Calif., orchestrated the scheme through Millennium Bank, its Geneva, Switzerland-based parent United Trust of Switzerland S.A., and U.S.-based affiliates UT of S, LLC and Millennium Financial Group. In addition to Wise and Kristi Hoegel and these entities, the SEC has charged Jacqueline S. Hoegel (who is the mother of Kristi Hoegel), Brijesh Chopra, and Philippe Angeloni for their roles in the scheme.
"As alleged in our complaint, the defendants disguised their Ponzi scheme as a legitimate offshore investment and made promises about exuberant returns that were just too good to be true," said Rose Romero, Director of the SEC's Fort Worth Regional Office. "This case demonstrates that investors need to be especially cautious when placing money with entities that may be outside the reach of U.S. regulators."
According to the SEC's complaint, at least $68 million was raised from more than 375 investors since July 2004. Millennium Bank, a licensed St. Vincent and the Grenadines bank, solicited new investors for its CD program through blatant misrepresentations and glaring omissions in its online solicitations and in advertising campaigns targeting high net-worth individuals. For example, in offering materials, Millennium Bank claimed that its parent, United Trust of Switzerland S.A., provides Millennium Bank with "over 75 years of banking experience, correspondent banking relationships, decades of knowledge in privacy and confidentiality as well as extensive training for our customer services professionals." In fact, the SEC alleges, United Trust of Switzerland S.A. is not a Swiss-licensed bank or securities dealer. Potential investors visiting Millennium Bank's Web site also were falsely informed that Millennium Bank is not affected by the global financial crisis and has a 100 percent client satisfaction record going back close to 10 years, and has its own affiliate asset management company with highly seasoned professionals who invest meticulously.
The SEC alleges that investor funds were not used for legitimate banking or investment activities. Instead, to create the appearance of a legitimate offshore investment, investors purchasing the CDs were instructed to deliver their investment checks to the offshore bank. The SEC alleges that the checks were then packaged and delivered to UT of S LLC's office in Napa, Calif., where the checks were electronically deposited by a remote deposit machine into a UT of S, LLC account. The account, which is held at a U.S. financial institution, also received millions of dollars of investor funds via wire transfer. From that account, the SEC alleges, the defendants misappropriated a vast majority of the investor funds to enrich themselves and pay personal expenses, while making relatively small Ponzi payments to investors.
Judge Reed O'Connor, in the U.S. District Court for the Northern District of Texas, granted the SEC's request for an asset freeze and emergency relief for investors.
The SEC charges that the defendants violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC's complaint also alleges that the defendants violated the registration provisions of the Securities Act. The complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and financial penalties.
Additionally, the SEC's complaint names four individuals and four entities as relief defendants: Lynn P. Wise of Raleigh, N.C. (the wife of William J. Wise); Ryan D. Hoegel of Lincoln, Calif. (the brother of Kristi Hoegel); Daryl C. Hoegel of American Canyon, Calif. (the husband of Jacqueline Hoegel), Laurie H. Walton of Raleigh; and United T of S, LLC, Sterling I.S., LLC, Matrix Administration, LLC, and Jasmine Administration, LLC. All four entities are based in Las Vegas. The SEC's enforcement action seeks an order compelling them to return funds and assets traceable to the Millennium Bank fraud. (Press Rel. 2009-68)
INVESTMENT COMPANY ACT RELEASES
Orders of Deregistration Under the Investment Company Act
Orders have been issued under Section 8(f) of the Investment Company Act declaring that each of the following has ceased to be an investment company:
Old Mutual Insurance Series Fund
An order has been issued on an application filed by Old Mutual Insurance Series Fund pursuant to Section 8(f) of the Investment Company Act declaring that it has ceased to be an investment company. (Rel. IC-28677 - March 25)
MetLife Insurance Company of Connecticut, et al.
A notice has been issued giving interested persons until April 17, 2009, to request a hearing on an application filed by MetLife Insurance Company of Connecticut, et al. requesting an order pursuant to Section 26(c) of the Investment Company Act to permit substitution of shares of certain registered management investment companies with shares of certain other registered management investment companies. The applicants also seek an order of exemption pursuant to Section 17(b) of the Act from Section 17(a) of the Act to the extent necessary to permit certain in-kind transactions in connection with the certain of the substitutions. (Rel. IC-28678 - March 25)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-BX-2009-005) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by NASDAQ OMX BX to establish new fees for services available to member and non-members. Publication is expected in the Federal Register during the week of March 30. (Rel. 34-59615)
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