A Branchburg, NJ investment adviser and 3 of her firms settled SEC charges that they sold millions of phony promissory notes ("P-Notes") to investors, many of whom are retired or unsophisticated in investments.  They consent to a court order that freezes their assets and requires monetary payments including financial penalties TBD at a later date.  The advisor, Sandra Venetis, also agreed to an SEC administrative action that bars her from future association with any IA or BD. 

    What Went Wrong.   Ms. Venetis is alleged to have told some investors that the P-Notes being sold were guaranteed by the FDIC and would earn tax-free interest of between 6% and 11% per year.  Investors also were told their money would be loaned to doctors, and backed by Medicare reimbursement payments to those doctors.  The funds instead were spent largely on business debts and personal expenses related to international travel, gambling, home mortgages and property taxes.

In all, at least $11mn was raised from investors since 1997 through her companies:  (i) Systematic Financial Associates Inc., an IA;  (ii) Systematic Financial Services LLC, an accounting and tax prep firm;  (iii) Systematic Financial Services Inc., an entity Venetis created to conduct the fraudulent offerings.  Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.

Venetis and the 3 firms were charged with unregistered sales of securities in violation of the Securities Act of 1933, and with violations of the antifraud provisions of the Securities Act and the Securities Exchange Act of 1934.  Ventis and the IA also were charged with violating antifraud provisions of the Investment Advisers Act of 1940.  Several family members were named as relief defendants for the purposes of recovering investor assets now in their possession.  [SEC PR 10-163, 9/2]