SEC Charges New Jersey Investment Adviser in Multi-Million Dollar Offering Fraud
FOR IMMEDIATE RELEASE
Washington, D.C., Sept. 2, 2010 — The Securities and Exchange Commission today charged a Branchburg, N.J.-based investment adviser and three of her firms with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.
The SEC alleges that Sandra Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
Venetis and the entities have agreed to settle the SEC's charges and consent to a court order that freezes their assets and requires monetary payments including financial penalties to be determined at a later date. Venetis also agreed to an SEC administrative action that bars her from future association with any investment adviser or broker-dealer.
"Venetis abused her position of trust to target older investors who were the most vulnerable to her egregious lies and misrepresentations," said Bruce Karpati, Co-Chief of the SEC's Asset Management Unit. "The SEC's enforcement action and the settlement reached ensure that she will never work in the securities industry again."
According to the SEC's complaint filed in federal court in New Jersey, Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.
The SEC alleges that the representations made by Venetis to investors were entirely false and the promissory notes and other offerings were unsupported by any investments, assets, or related revenues. Venetis simply fabricated the names and signatures of "doctors" or forged signatures of other people she claimed were recipients of the loans. Venetis concealed from investors that she used their funds to pay her home mortgage and property taxes, purchase a home for her daughter, finance improvements on a home owned by her brother, pay her own gambling debts, and pay for trips to such destinations as Alaska, Italy, France, India, and the Caribbean.
The SEC's complaint charges Venetis, Systematic Financial Associates, Inc., Systematic Financial Services, LLC, and Systematic Financial Services, Inc. with unregistered sales of securities in violation of the Securities Act of 1933 and with violations of the antifraud provisions of the Securities Act and the Securities Exchange Act of 1934. The SEC also charged Venetis and Systematic Financial Associates, Inc. with violations of the antifraud provisions of the Investment Advisers Act of 1940. In addition, the SEC's complaint names three relief defendants for the purposes of recovering investor assets now in their possession: Jennifer Venetis (Venetis's daughter); Kevin Persley (Venetis's brother); and Venetis LLC (an entity owned and controlled by Venetis).
Venetis and the entities have agreed to settle the SEC's charges and have consented to all of the relief that the SEC seeks in its complaint, including the entry of a court order enjoining them from future violations of the above provisions of the securities laws, ordering the payment of disgorgement of ill-gotten gains with prejudgment interest, financial penalties, an asset freeze, accountings, and the appointment of an independent monitor. The settlement will defer the determination of the amount of the monetary relief to a later date. The settlement is not final until approved by the court.
Venetis and Systematic Financial Associates Inc. also agreed to settle related administrative actions by the Commission that will bar Venetis from association with any investment adviser or broker or dealer, and revoke the registration of the firm.
Investors involved in this matter who need more information about the SEC's enforcement action can contact the agency with their questions at 212-336-0100 or SECSystematicinfo@sec.gov.
SEC Asset Management Unit and other staff within the New York Regional Office conducted an expedited investigation. The staff includes New York-based Asset Management Unit members Ken C. Joseph, James McGovern, Catherine Lifeso, and Panayiota Bougiamas, New York Senior Trial Counsel Jack Kaufman, and examination staff members Dawn Blankenship, Danielle Ryea, Kenneth O'Connor, Beth Abraham, and Francesco Spinella.
The SEC thanks the U.S. Attorney's Office for the District of New Jersey and Federal Bureau of Investigation for their assistance in this matter. The SEC's investigation is continuing.
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For more information about this enforcement action contact:
George S. Canellos
Director, SEC New York Regional Office
Bruce Karpati (212-336-0104) and Robert Kaplan (202-551-4969)
Co-Chiefs of the SEC Asset Management Unit
Ken C. Joseph
Assistant Director of New York Office and member of SEC Asset Management Unit