As previously noted in "SEC Derails Scam Train On Trading Platform"(BrokeAndBroker.com Blog, April 13, 2015), for many years I have warned about so-called Standby Letters of Credit, Bank Guarantees, and Trading Platform scams. These frauds are nothing than more than unadulterated bull-shit. Nonetheless, there are flocks of pigeons eagerly following the breadcrumbs into the arms of scam artists. Sadly, many victims of these frauds refuse to do their due diligence and abandon all logic and commonsense. With the recent settlement by two of the remaining respondents, a Securities and Exchange Commission case involving yet another trading platform comes to a close.
NOTE: Findings of Facts made in the above matter are solely as against Respondents Grosso and Brown. Respondent Spectrum and Respondent Worswick were granted a STAY of the proceedings and are presumed innocent unless and until proven guilty by a preponderance of the evidence.
Grosso is 60 years of age and a resident of Rocky Point, New York.1 OIP at 3. Brown is forty-seven years old and a resident of Boca Raton, Florida. Id. Spectrum is a Florida limited liability company that Worswick created in January 2010 for the supposed purpose of sponsoring and promoting concerts. Id. at 2. However, other than the investor funds which Spectrum received into its bank account, Spectrum has never had any corporate assets or business operations, and has served only as a vehicle for Worswick's fraud. 2 Id. Spectrum has never registered an offering of securities under the Securities Act or a class of securities under the Exchange Act. Id.
Between approximately May 2012 and October 2012 (the Offering Period), Worswick, acting through Spectrum, offered and sold to at least five elderly investors $465,000 of investments in what he called "Private Joint Venture Credit Enhancement Agreements" (Enhancement Agreements). OIP at 2. In selling the Enhancement Agreements, Worswick was helped by Brown, who devised and drafted the language of the Enhancement Agreements and other documents presented, or intended to be presented, to investors as part of the offering, and helped sell them to at least two investors. Id. at 2-3. Grosso also helped sell the Enhancement Agreements to investors while portraying himself falsely as an officer or employee of Spectrum. Id. During the Offering Period, Brown portrayed himself as an attorney-at-law but, in fact, has never been licensed as an attorney by any state. Id. at 3. In 2004, Brown was charged by the Commission with violations of Section 10(b) of the Exchange Act and Rule 10b-5, thereunder. Id. at 3. In 2005, Brown settled those charges by consenting to a court order enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b- 5, thereunder, and barring him for a period of two years from participating in the offering of a penny stock. Id.
Worswick and Grosso reviewed, edited, and disseminated to investors the documents created by Brown, and also solicited investors themselves. OIP at 3. Grosso posted information about the offering on a classified advertisement website in order to attract investors broadly. Id. Worswick, Brown, and Grosso were helped in their sale efforts by one or more of four individuals, who helped to identify and refer investors interested in Spectrum's Enhancement Agreements. Id. at 2. The Enhancement Agreements represented to investors that investor funds would be placed by Spectrum in "private funding projects" and used to "set up" a "credit facility" and something called a "trade slot" that would then be "blocked" for the benefit of a supposed "trade platform." Id. In selling Enhancement Agreements, Worswick, Brown, and Grosso told investors that, by investing in an Enhancement Agreement, the investors, along with Spectrum, would earn returns ranging from 900% in twenty days to 4,627% annually. Id. The investments were fictitious. Id.
After signing certain forms, early investors were allowed to discuss their potential investment with Brown. OIP at 4. Brown, Grosso or Worswick finalized the investor's Enhancement Agreement and provided it to the investor for signing. Id. Grosso and Worswick made some revisions to the Enhancement Agreements drafted by Brown for the final three investors. Id. Brown's role in the fraud lessened in or about the late summer of 2012. Id.
To add legitimacy to the offering, Worswick arranged for an escrow agent to receive investor funds and to release the funds to Spectrum at the investor's direction when certain preconditions were met. OIP at 4. Worswick, Brown, or Grosso would tell investors that the preconditions had occurred. Id. The use of an escrow agent provided a facade of legitimacy. Id. Investors in the Enhancement Agreements had no means to verify independently whether the pre-conditions had occurred. Id. The financial guarantee provided to two investors was fictitious. Id.
The Enhancement Agreements only vaguely described how investor funds would be used. OIP at 4. According to their terms, Spectrum would establish a credit facility and trade slot "approximately 7 banking days" after it received investor funds from escrow. Id. Afterwards, the credit facility and trade slot would be "blocked for the benefit of a trade platform." Id. The Enhancement Agreements further represented that the trade platform would begin making profit payments to the escrow attorney within thirty banking days of the trade platform being blocked, and that the escrow agent would disperse profit payments to investors within one business day of the escrow agent receiving them. Id. In addition, Spectrum itself would somehow participate in the investment with the investors and share in the profits accordingly. Id.
On June 18, 2012, Spectrum provided two investors with a financial guarantee, drafted by Brown and signed by Worswick, and purportedly backed by a particular insurance company. OIP at 5. In a June 18, 2012, email, Brown communicated through an intermediary to one of the investors that the "policy will be effective tomorrow . . . and must be signed by [the investor] and Mr. Worswick and sent back to [Brown]." Id. Brown added that the investor needed to release the funds from the escrow agent so that the policy premium could be paid. Id. In fact, the financial guarantee provided by Spectrum was fictitious. Id.
Of the $465,000 of investor funds raised, two investors obtained a return of their funds of $265,000. OIP at 2. Most of the remaining $200,000 was misappropriated by Worswick. Id. Among other things, he spent a portion of this amount on living expenses and paid other portions to a variety of people, including Grosso, who received $27,500. Id. Brown was paid between $15,000 and $20,000. Id. at 6 . . .
1 While the OIP states that Grosso is a resident of Rocky Point, New York, he has since moved to Andes, New York.
2 Any mention of behavior of Spectrum or Worswick in this Initial Decision is true only for purposes of this Initial Decision as to Respondents Grosso and Brown. 17 C.F.R. § 201.155(a) ("A party to a proceeding may be deemed to be in default and the Commission or the hearing officer may determine the proceeding against that party upon consideration of the record, including the [OIP], the allegations of which may be deemed true."). I do not make any findings as to Spectrum or Worswick.
10. Brown is 47 years old and a resident of Boca Raton, Florida. During the Offering Period, Brown portrayed himself to be an attorney-at-law but, in fact, has never been licensed as an attorney by any state. In 2004, Brown was charged by the Commission with violations of Section 10(b) of the Exchange Act and Rule 10b-5, thereunder. In 2005, Brown settled those charges by consenting to a Court order enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5, thereunder, and barring him for a period of two years from participating in the offering of a penny stock.
Page 2 of the June 11, 2015 OrderSUMMARY1. This matter concerns a prime bank scheme conducted through Spectrum by Worswick, its president and owner, and others.2. Between approximately May 2012 and October 2012 (the "Offering Period"), Worswick, acting through Spectrum, offered and sold to at least five elderly investors $465,000 of investments in what he called "Private Joint Venture Credit Enhancement Agreements" ("Enhancement Agreements").3. The Enhancement Agreements represented to investors that investor funds would be placed by Spectrum in "private funding projects" and used to "set up" a "credit facility" and something called a "trade slot" that would then be "blocked" for the benefit of a supposed "trade platform." In selling Enhancement Agreements, Worswick and others told investors that, by investing in an Enhancement Agreement, the investors, along with Spectrum, would earn returns ranging from 900% in 20 days to 4,627% annually. The investments were fictitious.4. Worswick signed each Enhancement Agreement on behalf of Spectrum in exchange for receiving investor funds. At least four of the Enhancement Agreements also included the representation that the investor would receive a full return of his or her principal investment after a specified number of days, but the investor would continue nonetheless to receive a steady stream of promised returns.5. Worswick's scheme was a blatant fraud. The supposed "private funding projects," "credit facilit[ies]," and "trade slot[s]" described in the Enhancement Agreements did not exist, and none of the funds Worswick obtained from investors was used for the investors' benefit. Moreover, none of the investors has received a return of their principal.6. Of the $465,000 of investor funds raised, two investors were subsequently able to obtain a return of $265,000 when they had second thoughts about the investments. However, most of the remainder of $200,000 was misappropriated by Worswick for his own purposes. Among other things, he spent a portion of this amount on living expenses and paid other portions to a variety of people, including another respondent, who received $27,500.