Washington, D.C., April 8, 2009 (LAWFUEL) – The Securities and Exchange Commission has charged a Denver-based investment manager and his firm for conducting a multi-million dollar Ponzi scheme through the sale of shares in investment funds that he manages. The SEC also charged the limited liability companies that issued the securities. The SEC is seeking an emergency court order to freeze all of their assets.
The SEC alleges that Shawn R. Merriman of Aurora, Colo., through his company Market Street Advisors, fraudulently obtained an estimated $17 million to $20 million from at least 38 investors residing in such states as Colorado, Minnesota, and Utah. Merriman told investors that he would invest their funds in stocks and options, and he reported impressive and consistent annual returns to investors. Instead, Merriman did not trade stocks and options after his first year of operations, during which he suffered trading losses, and he used millions of dollars in investor funds to support his lavish lifestyle and pay out withdrawals by other investors.
“During the first three months of 2009, the SEC brought more than two dozen emergency enforcement actions to halt an ongoing fraud,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “We pursue Ponzi schemes with a great sense of urgency, and bring cases swiftly and successfully to protect investors.”
Donald M. Hoerl, Director of the SEC’s Denver Regional Office, said, “Our complaint alleges that Merriman repeatedly deceived investors, many of whom considered him a personal friend, by sending them fictitious account statements showing annual rates of return of 7 to 20 percent. The SEC will continue to do everything in our power to protect investors victimized by such frauds and preserve the assets of those conducting them.”
According to the SEC’s complaint, filed in the federal district court in the District of Colorado, Merriman established his original investment fund in 1995. He had an aggressive investment strategy and lost approximately $400,000 shortly after inception. Rather than reporting those losses to investors, Merriman started another fund to receive new investment money that would cover any withdrawal by investors from the first fund. Merriman subsequently started a third and fourth investment fund, and in classic Ponzi scheme fashion used new investment money to pay investors who were requesting withdrawals and, eventually, to support his lavish lifestyle.
The SEC alleges that Merriman on several occasions offered “rebates” to existing investors in order to entice them into investing additional money with him. While the investors purchased membership units in limited liability companies, those investors did not exercise any control over the operations of those entities. Merriman represented to investors that he would make all investment decisions, and claimed that all investor funds had been, were, or would be pooled and used to purchase securities.
Contrary to his representations to investors, the SEC alleges that Merriman used investor funds to repay other investors and for his own personal purchases of classic cars, motorcycles, motor homes, a cabin in Idaho, and fine art collections including works by Rembrandt that are worth millions of dollars.
The SEC’s complaint alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition to the emergency relief, the Commission’s complaint seeks disgorgement of the defendants’ ill-gotten gains plus pre-judgment interest, financial penalties, and permanent injunctions barring future violations of the antifraud provisions of the federal securities laws.
The SEC’s investigation is continuing.
The SEC acknowledges the assistance of the U.S. Attorney’s Office for the District of Colorado, which has filed a related action, and the Denver Division of the United States Postal Inspector.