February 5, 2014
Here we go again. Another wunderkind trader and his flock of pigeons. On January 31, 2014, the Securities and Exchange Commission ("SEC") obtained a temporary restraining order and an emergency asset freeze against Michael P. Zenger, Lehi, UT. Additionally, the SEC is seeking a preliminary and permanent injuncition, and disgorgement, interest, and civil penalties.
A Little Diversion
The SEC's Complaint alleges that since June 2013, Zenger had solicited from two friends at least $200,000 for trading in futures contracts, commodities, and government securities; however, Zenger allegedly converted about $100,000 of that sum to pay for personal expenses including airplane rentals, monthly credit card bills, payments to BMW and Mercedes Benz, purchases at Saks Fifth Avenue, Nordstrom and Costco, and other personal expenses. Securities and Exchange Commission v. Michael P. Zenger, (USDC Utah,14-CV-00065, January 31, 2014).
NOTE: The charges in the Complaint are merely allegations and Zenger is presumed innocent unless and until found guilty in a court of law.
Broke But Not Broken
More pointedly, the Complaint asserts that the converted funds were diverted, in part, to pay a civil judgment entered against Zenger after his bankruptcy filing was contested by the bankruptcy trustee. Which raises the question as to whether any of the victims had bothered to do any due diligence to check out Zenger's bona fides.
As part of his pitch, the Complaint alleges that:
18. Zenger represented to investors that he was a successful trader and that he was trading his personal money, in addition to any money they invested with him. Zenger told one investor that he started with $65,000 of his personal money and doubled his money in his first year of trading.
Don't Worry. Trust Me.
A curious bit of information about this alleged scam is that Zenger apparently told investors that their money would be deposited into his personal bank account. Into his personal bank account? You'd sort of think that such a disclosure would have set off a whole batch of alarms but, alas, these days far too many pigeons just peck away at the bread crumbs without worry. Zenger allegedly assured his investors that after their funds were deposited into his personal bank account that he would then transfer the funds into trading accounts titled solely in his name. But, not to worry, Zenger then added that he would only remove the investors' money with their consent. Oh, and, keep in mind that all profits would be subject to a 50/50 split. A self-proclaimed "successful trader." Doubled his money in one year. Personal bank account. Personal trading account. Don't worry. Let's see how that all worked out.
What's Mine Is Mine. What's Yours Is Mine.
The Complaint alleges that on June 3, and June 13, 2013, two investors each wired $100,000 into Zenger's personal bank account at J.P. Morgan Chase Bank, N.A., ("Chase") and Zenger transferred the funds into a trading account in his name at Mirus Futures. Although both Mirus accounts were funded by the investors, Zenger falsely certified to Mirus Futures that the money in his trading accounts belonged to him personally, that he did not trade on behalf of any other person or entity, and that he did not have a profit sharing agreement with anyone else.
Towards the end of 2013, it seems that the alleged scam might have started to stink a bit and in response to a demand from one investor for a return of his principal, on December 3, 2013, Zenger paid $79,000 and promised to repay the balance. Around this time, Zenger alleged changed the log-on information to a trading account so that investors were blocked. In response to questions as to what was going on, the Complaint alleges that Zenger falsely told an investor that the SEC had frozen his trading accounts and the investor's access was blocked.