A Failure Of Due Diligence In Federal Fraud Case

June 12, 2013

Sometime around April 2010 through September 2011, Janamjot Singh Sodhi, aka Jimmy Singh fraudulently solicited investments through a firm he owned (Elite Financial Inc.) from individuals using false pretenses and promising various investment opportunities with high rates of return in a relatively short period of time.  Frankly, how droll -- and I'm truly sorry for that somewhat dyspeptic response but, seriously, another one of these too-good-to-be-true investment frauds?

Ponzi Du Jour

As is nearly always the case with these cases, Sodhi did not use the investors' funds for the stated investment purpose but instead used the funds to pay returns to other investors (a la Ponzi) and to pay various personal expenses. Oh yes, he actually stole the victims' funds and divvied up those proceeds to give the impression to earlier investors that they were receiving returns (albeit from the pockets of more recent pigeons); and, while he was at it, he helped himself to whatever was left over to cover his and others personal needs. Not much of a shock these days, right?

Keeping Up Appearances

Sodhi periodically sent them false financial statements purportedly showing the investments made on their behalf. Of course, he never did make those investments, but why get distracted by the truth?  When investors requested a return of their investments, Sodhi stalled and delayed through a variety of falsehoods. In some cases, he repaid certain investors with funds from newly acquired investors. In other cases, he provided investors with repayment checks that were insufficient, counterfeit, or drafted on a closed account. I mean, wow, this guy never seems to have emptied his bag of tricks.

And just how much did this con artist managed to get his hands on? Sodhi defrauded investors out of $2.3 million. Yup, it's apparently that easy to scam folks these days -- and for such impressive numbers.

End of the Line

On September 13, 2011, a warrant was issued for Sodhi's arrest, which occurred on September 16, 2011.  

On September 30, 2011, Sodhi, 35, Fresno, CA,  was indicted in the Eastern District of California.  

On January 22, 2013, Sodhi pled guilty to four counts of mail fraud and one count of wire fraud. He faced the maximum statutory penalties of 20 years in prison and a $250,000 fine on each mail fraud and wire fraud count and up to three years of supervised release. 

On June 10, 2013, Sodhi was sentenced to 4 years and 9 months in prison, and ordered to pay $2,386,000 in restitution to his victims. 

Bill Singer's Comment

I would like you to consider three interesting facts:
  1. Sodhi never disclosed to his investors that in January 2006 the New York Stock Exchange permanently debarred him or that he was never certified by the California Department of Corporations to operate as an investment adviser in California;
  2. In January 2009, the California Department of Corporations ordered Sodhi to cease and refrain from engaging in the business of an investment advisor in California. Despite his debarment and lack of certification, he continued to hold himself out to clients as a financial advisor who could buy and sell securities on behalf of clients; and
  3. During the time that Sodhi was soliciting money from his investors, Sodhi was not licensed by the State of California to sell the instruments at issue.
Why do I bring those three points up?  For starters, some four years after having been barred by the NYSE for misappropriating nearly half a million dollars, and some two years after having been cited by the State of California for unlicensed investment advisor and broker-dealer activity, Sodhi launched upon his criminal scheme.  While I fully appreciate that the United States Attorney framed his charges with the onus that Sodhi had failed to disclose to his victims that he had been barred by the NYSE and ordered to desist and refrain by the State, I must regrettably chide those same victims for failing to undertake the most minimal of due diligence.  How do you invest with someone who was previously barred by a regulator, previously subject to a state's action for unlicensed activity, and, presently unregistered to sell the very investments that you are prepared to purchase?

Oh, yeah, sure, I know the likely answers: I didn't know. He didn't tell me. I never check him out.

Within the span of a few minutes, I entered Sodhi's name into Google and was directed to these two disclosures:
  1. In the Matter of Janamjot Singh Sodhi (NYSE Hearing Board Decision: 05-131, March 9, 2006,) without admitting or denying guilt, Sodhi consented to the findings that during the period from January 1, 2002 to May 9, 2003, he had misappropriated approximately $474,700 from two customer accounts at his member firm employer by means of unauthorized Letters of Authorization and unauthorized checks, and caused inaccurate information to be reflected on the firm's books and records by completing new account documents and falsely identifying a customer's residence.  Sodhi consented to the penalyt of a Censure and Permanent Bar.  
  2. In the Matter of Brian Serimian, President; Janamjot Singh Sodhi a.k.a. Jimmy Sodhi; and Elite Financial Inc (Desist and Refrain Order, California Department of Corporations, January 9, 2009), the respondents were ordered to desist and refrain from engaging in the business of an investment adviser in California after a finding that they had engaged in the business of acting as an investment adviser and broker-dealer in the state without having first applied for and secured a license.
Finally, some of you may defend the failed due diligence by the victims based upon Sodhi's use of aliases disguising his real identity -- Jimmy Singh, for example. Hey, lemme ask ya suthin'.  If a Jimmy Singh asks you for $100,000 and promises to earn, say, 25% per annum, and that your investment will be 100% safe, don't you think that this investing genius would have left some detectable online footprint attesting to his brilliance? You know, his attendance at a university; his employment by some brokerage firms, hedge funds, or investment advisors; or some newspaper stories about his success.  I mean, c'mon, did any of the victims so much as even bother to look this guy up and check him out?  

Alas, all of which is part of the ongoing problem with these frauds.  

Also READ: