Washington, D.C., April 13, 2009 (LAWFUEL) – The Securities and Exchange Commission today charged an El Segundo, Calif.-based promoter and her firm for operating a $23 million Ponzi scheme that purported to use investor funds to invest in risk-free, high-yield investment programs involving bank trading, oil and gold exploration, or real estate.
The SEC alleges that Clelia A. Flores and Maximum Return Investments Inc. (MRI) primarily targeted California’s Hispanic-American community and promised returns of up to 25 percent within 30 to 45 days. Flores and MRI used millions of dollars from new investors to pay principal and returns due to earlier investors, and misappropriated investor funds to pay personal expenses for Flores and finance a lavish party for MRI to celebrate the company’s alleged financial success.
“As we allege in our complaint, Flores violated the trust of her own community by falsely promising high returns and no risk. When she couldn’t deliver, she resorted to paying off early investors with money from unsuspecting newcomers,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office.
The SEC’s complaint, filed in U.S. District Court in Los Angeles, alleges that Flores and MRI attracted more than 150 investors in seven states between late 2006 and early 2008. Flores and MRI solicited investors in the Hispanic-American community through word of mouth and referrals, and promotional documents were produced in Spanish and English. Flores paid a 10 percent commission to “referral partners” who solicited new investors, and she relied heavily upon testimonials by other investors in the Hispanic-American community. Throughout 2007, MRI also hosted conferences in hotels to attract new investors.
According to the SEC’s complaint, Flores claimed all investor funds would be used to invest in MRI’s risk-free, high-yield investment programs, and she touted to investors that their principal would be “guaranteed safe.” Promotional materials falsely represented that an investor’s principal would be fully secured by a bank-endorsed guarantee and MRI’s promissory notes claimed the investment was insured. However, the SEC alleges that Flores and MRI neither guaranteed nor insured the $23 million raised from investors, and only used $5.6 million of this amount to invest in high-risk ventures and start-up companies that had never paid MRI any returns.
The SEC alleges that Flores and MRI used approximately $13 million from new investors to pay principal and returns due to earlier investors. The complaint further alleges that Flores misappropriated more than $3.5 million of investor funds for personal expenses, including $443,000 to purchase a home, and almost $1.5 million of investor money to finance MRI’s operations and pay for the lavish party for investors.
The SEC’s complaint charges Flores and MRI with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of ill-gotten gains, and financial penalties.
The SEC reminds investors to exercise healthy skepticism and thoroughly investigate any promises of unusually high returns that seem to be too good to be true. Affinity frauds prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters frequently are – or pretend to be – members of the group themselves. The SEC’s Affinity Fraud Investor Alert provides investors with tips about how to avoid being a victim of affinity fraud: http://www.sec.gov/investor/pubs/affinity.htm.
Investors seeking more information about the SEC’s enforcement action against Flores and MRI should contact an SEC hotline for this case: 323-965-3313 for English or 323-965-3314 for Spanish.