During Military Saves Week, SEC Reminds Military Personnel and Other Investors to Protect Themselves From Affinity Frauds
Washington, D.C., Feb. 27, 2008 – The Securities and Exchange Commission today charged three promoters who targeted military families in a multi-million dollar investment scheme that forced victims into personal bankruptcy and their homes into foreclosure. The scam also targeted other affinity groups, including the Southern California Filipino community and fellow church members.
The SEC’s complaint names James B. Duncan and two others – Hendrix M. Montecastro and Maurice E. McLeod – who solicited investors in Southern California, Arizona, and elsewhere using sham investment seminars and “referral partners” including a member of the Air Force who solicited his fellow servicemen. The complaint alleges they gained control over investors’ finances by offering them securities in the form of real estate investment contracts, and purporting that the money investors earned would help make mortgage payments on investment homes purchased on their behalf. Instead of investing client funds as promised, they operated a Ponzi-like scheme by using money from new investors to make mortgage payments on previously purchased investment homes. When the scheme unraveled, it cost more than 75 investors an estimated $10 million.
During the Military Saves Week public service initiative taking place from February 24 to March 2 to highlight the Department of Defense’s ongoing financial readiness campaign, the SEC is reminding military personnel and other investors to beware of affinity frauds.
“The SEC will do everything in our power to pursue con artists that aim to cheat the honorable men and women who serve our nation and risk their lives to protect our freedom. We owe it to our military personnel to ensure that their personal finances are guarded from fraudsters that prey upon their trust,” said SEC Commissioner Paul Atkins, who will speak to military personnel at Naval Station Norfolk during Military Saves Week and has helped educate military families on investing during his visits to military bases around the country and abroad.
Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “We remain vigilant in our effort to fight affinity frauds, and this case is an especially egregious example of promoters taking advantage of anyone willing to trust them. We remind military families and all investors to exercise appropriate caution regardless of the relationship they may have with someone who approaches them with an investment opportunity.”
Rosalind R. Tyson, Acting Director of the SEC’s Los Angeles Regional Office, added, “These men refused to provide any written agreements to investors and pressured them into thinking they would lose out on a major investment opportunity if they failed to trust them. Investors should be wary of salesmen who do not provide specific information or documentation.”
In affinity frauds, con artists infiltrate tight-knit groups by showcasing a respected member of that community as one of their successful investors, giving the false illusion of a safe and secure investment opportunity and conning new investors into their Ponzi-like schemes. The SEC has resources available at www.sec.gov/investor/military.shtml to help military families understand the nature of these frauds and take steps to protect themselves.
The SEC’s complaint, filed in U.S. District Court in Riverside, Calif., alleges that between October 2004 and June 2006, the three defendants operated through Murrieta, Calif.-based Pacific Wealth Management, LLC (PWM) and Stonewood Consulting, Inc., to defraud investors from several affinity groups. The complaint alleges that Duncan, Montecastro, and McLeod falsely promised investors that their funds would be invested in real estate and various other investments that would subsidize their investment homes. The SEC’s complaint further alleges that Duncan, a recidivist, raised $1.2 million in a separate offering of preferred membership units in Total Return Fund, LLC, to approximately 20 investors. The complaint alleges that the proceeds raised in both offerings were commingled and used to run a Ponzi-like scheme that fell apart and left investors with homes in foreclosure and forced some investors to declare bankruptcy.
According to the SEC’s complaint, the defendants failed to disclose several key facts about the purchase of the investment homes. The defendants charged exorbitant real estate transaction fees financed by the investors, and submitted false mortgage loan applications on behalf of investors. The complaint also alleges that Duncan, who was touted as a financial genius, failed to disclose his prior securities laws violations.
The SEC’s complaint further alleges that Duncan and Total Return Fund misrepresented how investor money would be used. Specifically, the complaint alleges that while the Total Return Fund offering documents stated that 95 percent of investor funds would go towards the purchase of real estate, business assets, or accounts receivable, in fact, investor funds were used to pay returns to prior investors, and were used as part of the PWM fraud.
The SEC’s complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The complaint also names Christopher J. Oetting, Anthony M. Contreras and Biocybernaut Institute, Inc., as relief defendants, alleging that they received ill-gotten gains from the defendants’ fraudulent conduct.
The SEC acknowledges the assistance of the Arizona Corporation Commission.
Military Saves Week is an effort to help and support military members and their families by bringing the entire military community together to focus on financial readiness and build personal savings to provide for their immediate and long term financial needs. More information is available at www.militarysaves.org. Among the resources that the SEC provides military families at www.sec.gov/investor/military.shtml are brochures about how to recognize and avoid affinity fraud, facts to know about periodic payment plans, and a set of questions to ask a financial professional before making any investment. Military personnel also are encouraged to call the SEC’s Office of Investor Education and Advocacy at 1-800-SEC-0330 to have an Investor Specialist answer questions and provide information about investing.