Washington, D.C., July 23, 2008 (LAWFUEL) – The Securities and Exchange Commission today filed fraud charges and obtained an emergency court order to stop a Hillsborough, Calif., investment adviser who is alleged to have misappropriated more than $20 million from investors who were falsely promised that their money would be invested in the stock market.
According to the SEC’s complaint, Robert C. Brown, Jr. promised more than 200 investors living primarily in the San Francisco Bay Area as well as in southern California and out of state that he would invest their money risk-free in stock or options. Instead, Brown helped himself to millions of dollars of client money to pay for lavish personal expenses such as upkeep on his Ferrari, limousine services, and shopping trips. The SEC’s complaint also alleges that, in a classic Ponzi scheme tactic, Brown often transferred money from new investors to favored clients to create the illusion of profitable trading.
At the SEC’s request, the federal court for the Northern District of California issued an order freezing Brown’s assets and prohibiting him from, among other things, further transferring or dissipating his clients’ assets.
“As alleged in our complaint, Brown held himself out as a securities expert, when essentially all he did was steal money from his clients,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Today’s action serves as a reminder that investors should exercise caution in dealing with supposed experts who claim they can invest in the markets risk-free.”
According to the SEC’s complaint, since at least 2000 and continuing to the present, Brown (previously of Vallejo, Calif.) offered a variety of investment programs that falsely promised astronomical returns. One program promised, for example, to double investor money in eight months. The SEC alleges that Brown raised more than $20 million, but transferred millions of dollars to himself and his family members for personal use. Only approximately $4 million went to any brokerage account. However, this account was a personal brokerage account that Brown treated as his own piggy bank.
The SEC alleges that in order to perpetuate the scheme, Brown transferred newly-raised funds to older investors as purported profits on securities trading. The SEC’s complaint likewise alleges that Brown provided false account statements to investors that showed their investments were earning the returns he had promised. When Brown failed to repay his clients, he concocted elaborate excuses, blaming delays on “the Patriot Act” while representing that the SEC had “cleared” him of wrongdoing.
The SEC’s complaint charges Brown with violating the antifraud and investment advisory provisions of the federal securities laws, and seeks preliminary and permanent injunctions, disgorgement, and civil penalties. The Commission further seeks disgorgement of all investor funds disbursed to relief defendants, Duane Eddings, CDC Global, Inc. and Wise Investors Simply Excel, LLC. Pursuant to the court’s order, a hearing will be held on August 5, 2008 to determine whether the defendants’ activities will continue to be restricted during the remainder of the litigation.