On May 26, 2010, the Securities and Exchange Commission (SEC) charged that between 2004 and 2009, Gedrey Thompson and GTF Enterprises, Inc., with the assistance of Dean Lewis and Sezzie Goodluck, engaged in an offering fraud and ponzi scheme, raising over $800,000 from at least 20 investors who invested in GTF. Thompson primarily targeted unsophisticated investors in the Caribbean and African-American communities in Brooklyn, New York. Securities And Exchange Commission, Plaintiff, V. GTF Enterprises, Inc., Gedrey Thompson, Dean Lewis, And Sezzie Goodluck,Defendants (May 25, 2010, United States District Court, Southern District of New York http://sec.gov/litigation/complaints/2010/comp-pr2010-87.pdf ). Please note that the Defendants are presumed innocent unless and until proven guilty, and that the facts presented are merely allegations.
The Two Percent Solution
Thompson, Lewis, and GTF represented to investors that their money would be invested in options, futures and/or commodities, or other securities, and that said investments were risk-free and offering a guaranteed. pre-determined rate of return per quarter, ranging between 4 and 20 percent, regardless of how GTF performed in the market. GTF materials claimed that GTF protected investors from loss via a number of specific strategies: in addition to placing a so-called "two percent stop-loss" on each option.
The 30% Limit
Further, investors were assured that GTF purportedly invested only 30 percent of an investor's investment in the stock market and diversified the investment in four different market sectors. Thompson showed prospective investors a bogus formula that purported to determine the number of incorrect trades that would have to occur for an investor to lose 30% of the investor's investment. Thompson claimed that GTF would have to make 50 consecutive incorrect trades in one quarter before the investor would experience a loss on a hypothetical investment of $15,000, suggesting that any such loss was highly unlikely. None of these representations by GTF had any basis in reality.
Beyond Mere Puffery
Thompson misrepresented to prospective investors his trading qualifications and those of key GTF "associates." He falsely claimed that GTF was comprised of "extremely knowledgeable GTF strategists" with over "10 years of experience and education working with the top financial firms on Wall Street."
GTF investors entrusted Thompson and GTF with over $800,000 to invest on their behalf. However, Thompson only invested approximately $100,000 of those funds in the GTF brokerage account. Contrary to Thompson's representations about a "risk averse" trading strategy, Thompson conducted a risky options trading strategy, and began suffering losses immediately, eventually losing all of the funds invested.
Moreover, Thompson used GTF as his personal piggy bank. From September 2006 to February 2008, Thompson and GTF solicited $650,000 in funds for investment. However, Thompson did not transfer any of those funds to the GTF brokerage account. Instead, Thompson withdrew at least $465,000 in cash, and transferred at least $52,000 to his personal accounts. In addition, Thompson spent approximately $15,000 on personal expenses such as exotic trips for himself and his girlfriend, restaurants, and private school tuition for his son. In order to conceal and perpetuate the scheme, Thompson and GTF provided investors with fictitious quarterly account statements, which showed lofty, but false, returns that he had promised during the initial pitch (between 4 and 20 percent quarterly). The fictitious statements also showed investors a steady principal balance, net of any authorized withdrawals. However, these returns were false -- GTF never had a profitable quarter and the bulk of solicited investor funds was never invested.
From 2004 to 2008, Thompson and GTF obtained at least $826,850 in investor funds through an alleged affinity fraud and Ponzi scheme that specifically targeted investors living in the Caribbean and African-American communities of Brooklyn.Of those funds, Thompson transferred approximately $100,000 to the GTF brokerage account losing all of it through trading in options. Thompson returned only approximately $200,000 to investors and misappropriated the remainder, approximately $626,580.
The SEC charged
The SEC seeks to enjoin each defendant from future violations of these provisions along with monetary relief and certain other sanctions.
Bill Singer's Comment: Yes, it is that easy to defraud public investors. Far too many investors send thousands of dollars to brokers that they never met, who work at firms that they never heard of, to invest in companies that don't exist. However, that same individual investor will spend hours online reading reviews for a $1,000 laptop, will compile exhaustive lists of the best prices for the unit, go to local computer stores to try out a given model, and then spend hours haggling over the price.
Apparently, none of the targeted investors in this case did much -- if any -- investigation of the folks that they were dealing with or the companies involved. Thompson, Lewis, and Goodluck didn't hold a single securities license. GTF was not registered with the SEC and had never registered a single securities offering. Nonetheless, during a five-year period, some 20 pigeons anted up $800,000 to invest with these unregistered persons through their unregistered entity in ficititious investments.
Clearly, you don't need to go to great lengths or be a particularly sophisticated con artist in order to scam the public. Just promise them the moon. Tell 'em what they want to hear. And enjoy your exotic trips, dates, and restaurants on their dollars.
Sad but true.