The SEC charged 2 Florida men with operating a bogus private equity fund that, in reality, was a Ponzi scheme preying largely on Florida teachers or retirees.  The SEC complaint alleges that James Davis Risher of Sanibel handled the fund’s trading operations, while Daniel Joseph Sebastian of Lakeland distributed offering materials and solicited investors for the fund.  Together, they raised $$22 million from over 100 investors. 

Risher touted his "substantial experience in trading equities and providing wealth and asset management services."  If he had such experience - which is unlikely - it would have gained in jail, where he spent 11 of the previous 21 years.  

Sales Pitches to Investors.   Risher and Sebastian allegedly marketed the fund under the names Safe Harbor Private Equity Fund, Managed Capital Fund, and  Preservation of Principal Fund.  Investors were told to expect annual returns ranging from 14% to 124%, which they would earn by investing in public equity securities through a broker-dealer.  Investors received fabricated account statements indicating such high returns to support their false claims.  Yet, only a fraction of the money raised was actually invested;  the rest went for personal expenditures phony management and performance fees. 

Investors Targets.   The SEC says that Sebastian often solicited his former customers at his prior job as an insurance broker.  While primarily pitching the investments to educators, retirees, and members of several churches in Florida, he also solicited investors in California, other states, and Canada.

Knowing their existing insurance and annuity investments, Sebastian persuaded his former customers to roll over money in these products into the fund where they could earn rates of return that were higher than the products he previously had sold them. 

Material False Statements, Omissions.   Alleged material false statements and omissions were provided to investors about Risher’s criminal history, the fund’s investment strategy, the fund’s investment returns, the safety of investors’ principal, and the existence of audited financial statements.  Further:

• Risher misrepresented that the fund was registered in Bermuda;
• Risher and Sebastian falsely claimed that the fund was audited annually by a Bermudan auditor.
• Sebastian told investors over the phone and in meetings that they would never lose their principal investments in the fund.
• Sebastian provided some investors with written guarantees from a company he owned that would reimburse any loss - that company had no assets.

The SEC seeks permanent injunctions, disgorgement, and financial penalties against Risher and Sebastian.

SEC Miami Regional Office Staff Credits.   Investigation by Cecilia Danger, Chad Alan Earnst;  Litigation by James Carlson.

For further details, and the SEC Complaint, go to:   [SEC PR 11-171, 8/29/11]