SEC Charges Renaissance Asset Fund and Others with $16 Million Offering Fraud
Ponzi Scheme Victims Included Senior Citizens
FOR IMMEDIATE RELEASE
Washington, D.C., July 17, 2006 The Securities and Exchange Commission today filed an action charging Renaissance Asset Fund, Inc., Ronald J. Nadel, and Joseph M. Malone with fraudulently raising over $16 million from more than 190 investors nationwide. The Commission’s complaint, filed in the United States District Court for the Central District of California in Orange County, alleges that Renaissance and its principals operated a Ponzi scheme and used investor funds to pay lavish personal expenses. Many of their victims were elderly and were solicited through Jehovah’s Witnesses congregations.
At the same time it filed the civil injunctive action, the Commission settled administrative cease-and-desist proceedings against Senior Resources Asset Fund, LLC and Kenneth E. Baum based on their conduct in selling Renaissance investments to seniors. With their consent, the Commission ordered both Senior Resources and Baum to cease and desist from selling unregistered securities, and ordered Baum to cease and desist from acting as an unregistered broker-dealer.
SEC Enforcement Division Director Linda Chatman Thomsen said, “Fraud against seniors and affinity groups is particularly egregious because it is perpetrated through abuse of trust. The filing of these actions reflects the Commission’s determination to protect seniors and other investors from securities fraud by those who would prey upon their vulnerabilities and group affiliations. The actions further highlight the significance of today’s Seniors Summit in Washington, D.C., a collaboration between the SEC, NASD, NASAA, AARP, and other organizations, to increase awareness of elder fraud and to share strategies on protecting senior investors.
Among other things, the Commission’s complaint against Renaissance, Nadel and Malone sets forth the following allegations.
- From at least March 1999 through April 2004, the defendants raised at least $16 million by selling promissory notes to investors. The defendants raised funds for multiple purported projects, including a general fund, an outlet mall, an international currency exchange, and a Swiss bank. Some of the purported projects did not exist, and others were unsuccessful.
- The defendants misrepresented to investors that their investments would earn returns ranging from 10% to 25% in as little as four months. The defendants also sent false account statements to investors setting forth the fictitious profits their investments had purportedly earned. Based on the returns shown in these fraudulent account statements, many investors reinvested their principal and purported profits in other Renaissance projects.
- The defendants operated Renaissance’s programs as a Ponzi scheme, paying earlier investors with funds raised from later investors. Nadel also used investor funds to pay for personal expenses, including country club memberships, car leases, and retail purchases. The majority of investors in Renaissance never received the interest or return of their principal the defendants had promised.
The complaint charges Renaissance, Nadel, and Malone with fraud in violation of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges Nadel and Malone with violations of the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The complaint seeks permanent injunctions prohibiting future violations of the securities laws, an accounting, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.
The Commission’s settled Order against Baum and Senior Resources makes the following findings, among others.
- Between February 2001 and October 2002, Senior Resources issued unregistered securities in the form of promissory notes. These notes purported to bear interest at rates ranging from 10% to 15% per year, and to mature two years from the date of issuance.
- Baum, the manager and director of Senior Resources, offered Senior Resources notes and other unregistered securities to at least 28 investors and received transaction-based compensation in connection with his sales.
- As a result of their sale of unregistered securities, Senior Resources violated Sections 5(a) and 5(c) of the Securities Act, and Baum willfully violated Sections 5(a) and 5(c) of the Securities Act and the broker-dealer registration provisions of Section 15(a) of the Exchange Act.
The Order directs Senior Resources and Baum to cease and desist from committing or causing violations or future violations of Sections 5(a) and 5(c) of the Securities Act, and orders Baum to cease and desist from committing or causing violations or future violations of Section 15(a) of the Exchange Act. It orders disgorgement and prejudgment interest against Senior Resources and Baum but waives payment based on sworn financial statements showing inability to pay. It states that the Commission is not imposing a civil penalty against Baum for the same reason. The Order further bars Baum from association with any broker or dealer for a period of three years. Senior Resources and Baum consented to the issuance of the Order without admitting or denying its findings.
The SEC Seniors Summit began today at 10:00 A.M., E.D.T., at SEC Headquarters, with a live webcast at www.sec.gov.
Laura M. Metcalfe
Assistant Regional Director
Administrative Proceeding; Release No. 33-8723
Litigation Release No. LR-19764 and Complaint