Charles Ponzi lives on.
This is an update of an April 9, 2012, "Street Sweeper" column.
According to federal prosecutors, starting in October 2004, George Elia, 68, formerly of Ft. Lauderdale, FL, allegedly engaged in fraud when he solicited investors.
Ho hum . . . as if that's a major news story these days? I mean, to be really cynical here, are we supposed to be surprised that someone located in Florida is purportedly engaging in fraud? Lately it seems that the Sunshine State has become a destination of first resort for those looking to engage in medicare or securities fraud.
So, when I read the press releases about Elia, it took on all the excitement of a fender bender on a highway. You may not be able to avert your eyes, you may feel compelled to slow down and gawk, but you're also going to be met by a blasť officer of the law admonishing you: Nothin' to see here. Move on.
Elia is charged with telling investors that his companies had significant assets. The feds say au contraire. Elia purportedly told investors that he was a day-trading master of the universe. According to the allegations against him, his record doesn't necessarily bear that out. Then there are the accusations that Elia promised astronomical returns on investment. As with so many of such promises, a lot of investor apparently didn't see the anticipated results; and as to any dollars that made their ways back to any investors, the bucks came from newer, fresher meat a la Ponzi.
On April 5, 2012, Elia was indicted on one count of wire fraud.
NOTE: An indictment is only an allegation, and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
On April 6, 2012, the Securities and Exchange Commission ("SEC") filed a separate civil case against Elia and his companies for engaging in a scheme to defraud investors. In SEC v. George Elia and International Consultants & Investment Group Ltd. Corp. as Defendants, and 212 Entertainment Club, Inc. and Elia Realty, Inc., as Relief Defendants (S.D. FL, Civil Action No. 0:12-cv-60616 / Litigation Release No. 22319 / April 6, 2011).). At . The SEC'sComplaint charges that Elia and ICIG violated antifraud provisions of U.S. securities laws and that Elia aided and abetted violations by the firms. The SEC is seeking permanent injunctions against Elia and ICIG, disgorgement of ill-gotten gains plus pre-judgment interest, and civil penalties
NOTE: A Complaint is only an allegation, and the defendant is presumed innocent unless and until proven guilty beyond a preponderance of the evidence in a court of law.
Elia is listed as the President of Defendant ICIG, and of Third Party Defendants 212 Entertainment Club and Elia Realty. He was never registered with the SEC.
The SEC Complaint alleges
1. From March 2005 to January 2012, Defendants George Elia and his company, International Consultants & Investment Group Ltd. Corp. ("International Consultants"), orchestrated a Ponzi scheme in which Elia raised approximately $11 million from approximately 25 investors. Elia's scheme was, in part, an affinity fraud: a number of the investors were members of the gay community in Wilton Manors, Florida. Elia falsely told investors he had a long track record of day trading stocks and exchange traded funds to yield annual returns as high as 26 percent, and that his trading on behalf of investors was paying quarterly returns of up to 20 percent.
2. However, in fact, Elia's trading resulted in losses or only marginal gains in limited time periods. Further, he misappropriated millions of dollars of investor funds, so any percentage returns he claimed could not have provided enough profits to pay all investors the returns he claimed. Elia transferred the funds to entities he controlled, including Relief Defendants 212 Entertainment Club, Inc., and Elia Realty, Inc. He also used some of the funds to pay personal expenses such as mortgage and car payments, and to pay an associate to introduce him to potential investors to sustain his Ponzi scheme.
The Complaint further alleges that Elia and ICIG operated through an informal "Investor Funding Club" and through funds including Vision Equities Fund II, LLC and Vision Equities Fund IV, LLC. It alleges that Elia sent one investor a statement for the first three quarters of 2009, showing returns of 3.48%, 3.48%, and 3.52% respectively. These statement are characterized as false and misleading because the returns exceeded Elia's trading gains for the period. In at least one instance, the SEC alleged that Elia reassured an investor by showing him falsified statements that grossly overstated account balances.
As noted in the Complaint, by 2011, the alleged scam seems to have begun unraveling:
38. Another investor, who had invested approximately $2 million with Elia, requested a $100,000 redemption in March 2011 to pay for renovations of his home. Over the next several months, Elia paid out partial redemptions to the investor, and did not return numerous emails and phone calls. When the investor - a North Carolina resident - became concerned about his investments and tried to set up a meeting with Elia in Florida to review his account in early 2012, Elia emailed the investor he was at the airport about to get on a plane and would contact him when he returned.
39. As word that Elia was not honoring investment requests circulated among the close-knit group of investors, more demanded refunds, leading to the collapse of the Ponzi scheme. In early 2012, Elia sold his house and fled to Cyprus.
Bill Singer's Comment
Stripped down to its bare bones, what we have here are allegations of yet another affinity fraud - this one targeting Florida's gay community. Beyond that aspect of the case, it's all pretty much a re-run and re-hash of a long line of predecessors. A flashy character waving lots of flash cash and speaking of accomplishments that investors failed to investigate and verify. Oh yes, they asked Elia for some proof and he apparently manufactured whatever would calm their concerns - or, at least, that's what the feds alleged. Add into that tired mix of half-truths and outright lies the same-old-same-old apparent diversion of investors' funds into private pleasures and, well, like I've said repeatedly, nothing much new to see here. Keep moving along.For now, at least, it's not about Goldman Sachs or MF Global - and it's not a finger pointing at the likes of Merrill Lynch, JP Morgan, Morgan Stanley, or UBS. This is a relatively small-time scam that spread by word-of-mouth among Florida's gay community. Next week, we may likely read of similar facts involving Florida's Jewish or Latino community, California's evangelical community, New York's gay community, or Michigan's Arab community, or - well, you know, just pick a state and an affinity group and wait.
On March 27, 2012, after arriving on a flight from London, Elia was arrested in Las Vegas, NV, pursuant to a a criminal Complaint alleging wire fraud. If convicted, Elia faces a maximum of twenty years in prison, to be followed by three years of supervised release, and a potential fine. Elia is currently incarcerated in the Federal Detention Center in Miami, FL, facing criminal charges in U.S. v. Elia.
NOTE: A Criminal Complaint is only an accusation and a defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt in a court of law.
A Second Shoe Drops
On November 9, 2012, the SEC filed a Complaint in the Southern District of Florida charging James F. Ellis, 69, Wilton Manors, FL, with defrauding at least 14 investors (a significant number of which were gay) by soliciting them to invest in a Ponzi scheme. The Ellis Complaint characterizes many of the victims as inexperienced, unaccredited investors. Securities and Exchange Commission v. Ellis, (12-cv-62211; Litigation Rel. No. 22528, November 9, 2012).
The Ellis Complaint alleges that from 2004 to 2011, Ellis fraudulently solicited investors for George Elia. Pointedly, it is alleged that Ellis falsely represented to investors that he had personally invested with Elia at least $5 million derived from an inheritance from his parents - on which Ellis claimed to have earned 16% to 20% annual returns or that he earned $20,000 to $24,000 per month. At the time of such representations, Ellis' net worth was allegedly only about $200,000 and there was no evidence of his having inherited any estate from his parents. Although Elia and his entities had paid over $2.1 million to Ellis over seven years, the Ellis Complaint disputes that such payments were investment returns. Further, Ellis is charged with falsely assuring investors as to their investments' safety by falsely asserted that he had tested Elia by:
Ellis allegedly claimed that Elia's investment acumen made his luxurious lifestyle possible. To further that impression, Ellis apparently engaged in ostentatious displays of wealth, including expensive real estate, luxury cars, jewelry, opulent entertaining of his friends, and expensive cruises - all the while hiding the fact that such wealth was derived from payments from Elia for fraudulently touting the investment scam.
Separately, on November 9, 2012, the United States Attorney's Office for the Southern District of Florida announced the filing of criminal charges against Ellis.
NOTE: The SEC Complaint contains allegations and the defendant is presumed innocent unless and until proven guilty in a court of law; similarly, the criminal Complaint contains allegations and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Below, find a sample of my recent online commentaries about affinity fraud. Use the painful lessons learned by many fleeced investors to protect your savings. Pass these articles on to those you know who have been approached by purported members of their community with promises of overblown returns.