The Securities and Exchange Commission today charged the owner of a New York-based investment advisory firm with defrauding investors while grossly exaggerating the amount of assets under his management.
The SEC alleges that Fredrick D. Scott of Brooklyn, N.Y., registered his firm ACI Capital Group as an investment adviser and then embarked on a series of fraudulent schemes targeting individual investors and small businesses. Scott repeatedly touted ACI’s registration under the securities laws and falsely claimed the firm’s assets under management to be as high as $3.7 billion to bolster his credibility when offering too-good-to-be-true investment opportunities. As Scott solicited funds from investors after promising them very high rates of return, he simply stole their money almost as soon as they deposited it with ACI. Scott paid no returns to investors and illegally used their money to fund such personal expenses as his children’s private school tuition, air travel and hotels, department store purchases, and several thousand dollars in dental bills.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced Scott has pleaded guilty to criminal charges. Among the charges to which Scott has pleaded guilty is making false statements to SEC examiners when they questioned whether Scott and ACI had accepted loans from investors. SEC examiners notified the agency’s Enforcement Division, which began investigating and referred the matter to criminal authorities.
“Scott told brazen lies about the value of ACI’s assets under management and its ability to deliver huge returns on various investments,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Our examination and enforcement staff aggressively pursue investment advisers who flout the registration provisions of the securities laws for their personal gain, especially those who attempt to cover up their misdeeds by flat-out lying to our examiners.”
According to the SEC’s complaint filed in federal court in Brooklyn, one variation of Scott’s fraud was a so-called advance fee scheme – Scott promised investors that ACI would provide multi-million dollar loans to people seeking bank financing. But investors were told that they first needed to advance ACI a percentage of the loan amount, and once they did so they would receive the remaining balance of the amount that Scott promised to pay. Scott had no intention of ever returning the money, nor did he repay it.
The SEC alleges that in another iteration of his fraud, Scott offered investors the opportunity to make a bridge loan to a third-party entity. The investor was told to fund one portion of the loan, and ACI would supposedly fund the remaining balance. In exchange, the investor would supposedly receive a substantial return on his initial investment. In this scheme as with each of his others, investors never received returns and Scott stole the money.
The SEC’s complaint charges Scott with violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 207 of the Investment Advisers Act for filing a false Form ADV, and aiding and abetting ACI’s improper registration in violation of Section 203A of the Advisers Act.
The SEC’s investigation was conducted in the New York office by Sharon Binger, Adam Grace, Justin Alfano, Elzbieta Wraga, and Jordan Baker. The investigation stemmed from a referral by the SEC’s examination staff including Raymond Slezak, Michael O’Donnell, Kathleen Raimondi, and Ken Fong. The SEC’s litigation will be led by Alexander Vasilescu. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Federal Bureau of Investigation.
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