SEC Charges Ohio-Based Investment Adviser for Defrauding Clients in Several States
FOR IMMEDIATE RELEASE
Washington, D.C., March 29, 2010 — The Securities and Exchange Commission today charged an Ohio-based investment adviser with fraud for lying about his investment strategy, fabricating account statements to hide losses, and using investor money to buy property and pay unrelated business expenses.
The SEC alleges that Enrique F. Villalba, Jr., of Cuyahoga Falls solicited investors in California, Illinois, Ohio, Tennessee and Washington through his former investment advisory business — Money Market Alternative L.P. — by touting an investment strategy that he falsely claimed was conservative and relatively risk-free. Villalba promised clients that he would preserve their principal investment while still earning them returns of 8 to 12 percent annually, and assured them that their money would only be used for investments in securities. Instead, he allegedly traded predominantly in commodity futures contracts and lost millions of dollars doing so. Villalba also made Ponzi-like payments to some investors, and misappropriated client funds to enrich himself and invest in two start-up coffee businesses.
Neither Villalba nor Money Market Alternative L.P. is registered with the SEC under the securities laws.
“Villalba defrauded his clients and breached his fiduciary duty as an investment adviser in the most egregious way — by stealing client funds and trading in an unauthorized manner,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office.
According to the SEC’s complaint, filed in U.S. District Court in Cleveland, Villalba raised more than $39 million in client funds over a 13-year period. To substantiate the safety of his investment strategy, Villalba falsely claimed that he placed stop orders approximately 2 percent above or below the entry price of the investments. Villalba further enticed prospective clients by assuring them their money would only be used for investments in securities, including S&P 500 Index contracts, treasury bills or interest-earning money market accounts, and that his management fees would be limited to between 12 percent and 15 percent of the profits he generated on their behalf.
The SEC alleges that Villalba instead suffered more than $17 million in trading losses with his clients’ money. Villalba also misappropriated more than $4.1 million of investor funds for his management fees, salary and company overhead. He spent more than $700,000 to buy property and more than $1.2 million in two start-up coffee businesses that he owned. He also made Ponzi-like payments to early investors with money from new investors.
The SEC further alleges that Villalba prepared and provided his clients with false quarterly account statements that concealed his investment failures and his misappropriation of client funds. The fabricated documents always showed that his clients’ accounts had increased in value that quarter. The SEC’s complaint also alleges that Villalba provided one investor with falsified brokerage statements using the letterhead of a brokerage firm.
The SEC’s complaint charges Villalba with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In addition to a permanent injunction, the complaint seeks disgorgement with prejudgment interest and a financial penalty.
The U.S. Attorney’s Office for the Northern District of Ohio filed an information against Villalba in a related criminal action today. The U.S. Commodity Futures Trading Commission (CFTC) also filed a complaint against Villalba today.
The SEC acknowledges the assistance of the U.S. Attorney’s Office, the Federal Bureau of Investigation, and the CFTC.
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For more information about this enforcement action, contact:
Andrew G. Petillon
Associate Regional Director, SEC’s Los Angeles Regional Office
Finola Halloran Manvelian
Assistant Regional Director, SEC’s Los Angeles Regional Office
John M. McCoy III
Regional Trial Counsel, SEC’s Los Angeles Regional Office