Diamond Dust: Prominent Cuban-American Florida Jeweler Named in Affinity-Fraud Ponzi Scheme

June 3, 2010

This all starts out somewhat mundane. According to Social Affairs Charity Register http://socialaffairscharityregister.com/blog/?p=101 (January 28, 2009), Luis Felipe Perez was born in Havana, Cuba in 1972 and subsequently lived with his family in Miami, Florida. In 1977, Perez went on to the Gemological Institute of America to learn the study of gems and precious stones after graduating high school in 1990. In 1995, he opened his first retail jewelry store, quickly establishing a large base of private and wholesale clients. Soon after, he followed his success by moving into the business of diamonds and wholesale and the designing of his own collection. The article notes that , "Since that time, Luis Felipe Perez has established himself as one of the most successful independent private jewelers in the country."

Perez became the president and sole owner of Florida's Lucky Star Diamonds, Inc. and Luis Felipe Jewelry Design Corp., which, oddly, neither jewelry company apparently had any employees. While we would have loved to see Perez's life story headed for a happy, inspirational, Hollywood ending -- something like a Cuban-American version of the movie Rudy, such was not to be.  Unfortunately, Perez's successful independent private jewelry business became a struggling jewelry business. Then things went off the deep end.

Jewelry Business Proceeds

In The Securities and Exchange Commission v. Luis Felipe Perez (United States District Court, Southern District of Florida / Miami Division, June 2, 2010). http://sec.gov/litigation/complaints/2010/comp-pr2010-95, it is alleged that beginning in 2006, in order to finance his struggling jewelry businesses, Perez began offering investors no-risk collateralized promissory notes promising annual returns of 18% to 36% a year, paid in monthly installments. Perez allegedly told prospective investors, all acquaintances of his, that he would pay the interest from the proceeds of his jewelry business.



New York Pawn Shops


Following on the heels of his 2006 offering, Perez then hit upon an expanded scenario in late 2007.  In an effort to raise more money, Perez allegedly began telling prospective investors he would use their money to provide financing to pawn shops in New York, which he claimed paid him 5% to 10% monthly returns (60% to 120% annually). Allegedly, he also began offering investors higher annual returns up to 120%. Perez allegedly guaranteed these high returns on investment at no risk, and offered investors the option to withdraw their principal with little or no advance notice.


Perez is accused of bolstering his image with lavish spending, including extensive personal use of limousines, extravagant dinners, and bodyguards. Allegedly, he attracted and befriended new investors through word-of-mouth from previous investors, and exploiting his personal and family relationships, including his ties to local politicians. It is charged that from 2006 until June 2009, Perez raised approximately $40 million from approximately 35 investors, predominately Hispanics living in South Florida.  Yet another likely example of affinity group fraud. 




You know that part where Perez said that his jewelry businesses generated sufficient revenue to pay the investors their principal and interest?  Turns out that his businesses didn't generate enough revenue.  Where did the funds come to pay some investors? You know all those Ponzi schemes that you've been reading about lately?  You guessed it - allegedly Perez took from new investors to pay old investors. Moreover, all that gibberish about deals with pawn shops - the SEC says that there were no such deals and no financing was provided by Perez to those shops.


Perez allegedly told some investors that he had diamonds from the pawn shops that he was financing, and that he had specifically set aside those precious jewels to  secure their investments. In some instances, the purported diamonds were placed in a bank safety deposit box, to which Perez and an investor had access. In at least one other instance, Perez showed diamonds to a potential investor and claimed they were collateral for his investment. The SEC alleges that the diamonds did not secure the investments, and the purported gems in the safety deposit box were fake.


Perez is further charged with wrongly assuring some investors that they were beneficiaries on his life insurance policy. Not a bad idea but for the fact that  Perez allegedly had defaulted on the policy premium and the policy had, as a result, lapsed - which he apparently didn't think to raise with his pigeon.


Laissez Les Bon Temps Roulez


From 2006 until the scheme collapsed, Perez allegedly used investor funds to pay himself and his family more than $6 million in salaries, bonuses, and lavish expenses. He used the money to: purchase a $3.2 million home and $1 million worth of jewelry for himself and his wife, lease $400,000 worth of luxury cars, take exotic vacations that cost him $200,000 a year, spend $300,000 on clothing for his wife, and spend $200,000 for meals at expensive restaurants.  In addition, Perez gave away more than $1 million to family members, spent close to $300,000 on travel by private jet, and purchased artwork costing $100,000. He paid himself an annual salary of $250,000. Perez's extravagant spending also extended to $100,000 in political contributions (reportedly to Republican candidates).


All good and bad things must end. By June 2009, Perez had allegedly depleted the funds he needed to satisfy the outstanding oral loan agreements or written promissory notes he had issued to investors. He ceased making payments to investors and refused to return their principal.


Case in Point 


Typical of those defrauded, is one investor whothe SEC says invested $200,000 with Perez, which is documented by a promissory note dated November 1, 2008. Every quarter, Perez delivered to the investor a check for that month and two post-dated interest payment checks for the next two months. This investor received and deposited the monthly interest payment checks from December 2008 through June 2009. In July 2009, this investor attempted to deposit the check dated for July that Perez had given to him. The check was returned for insufficient funds. He did not receive any further payments from Perez.


The SEC filed a three-count Complaint alleging securities fraud against 38-year-old Perez, presently a resident of Miami, Florida. The SEC is seeking a permanent injunction; an order directing Perez to submit a sworn accounting; disgorgement of all ill-gotten gains, and an order directing Perez to pay a civil penalty. The Securities and Exchange Commission v. Luis Felipe Perez (United States District Court, Southern District of Florida / Miami Division, June 2, 2010. http://sec.gov/litigation/complaints/2010/comp-pr2010-95.pdf


Criminal Charges to Boot


On June 2, 2010, Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, announced the filing of a criminal information charging defendant Luis Felipe Perez with six-counts of securities fraud in connection with a $40 million Ponzi scheme.  http://www.justice.gov/usao/fls/PressReleases/100602-02.html