Attorney Targeted Elderly in Ponzi, Says SEC

LOS ANGELES (CN) — Using ads in USA Today, an attorney and a businessman defrauded 250 people, mostly retirees, of nearly $12 million by promising huge returns from investing in lawsuits, the SEC claims in court.

 The SEC accused Michigan tax attorney James A. Catipay, Washington state legal marketer David A. Aldridge, and their California-based company Prometheus Law of four counts of securities fraud, in an April 15 lawsuit in Federal Court.

 The scheme capitalized on the growing business of "litigation funding," in which investors underwrite attorneys' high-dollar commercial lawsuits, in hope of profiting from settlements.

 Catipay and Aldridge took money from small investors, allegedly to fund personal injury and mass tort cases, but the SEC says it was a Ponzi scheme.

 "Catipay and Aldrich spent millions of dollars on personal items, including a million-dollar loft in downtown Los Angeles and paying Aldrich's personal income taxes. So when the first approximately $120,000 of investor returns came due, the defendants used money raised from new investors to pay the existing investors — payments that both Catipay and Aldrich admitted were, in fact, Ponzi payments," the SEC says in the lengthy complaint.

 They defrauded investors "by repeatedly downplaying the risks associated with their investments and the fact that their entire business model was unrealistic to afford the exorbitant returns promised," Michele Layne, the head of the SEC's Los Angeles office, said in a statement.

 Catipay and Aldridge told victims their money "is never at risk," the SEC says, citing the defendants' 2014 "information packet." They promised to spend the money lining up plaintiffs to bring class actions against drug companies and medical device makers, and guaranteed returns of 100 to 300 percent, according to the complaint.

 They offered what they called "forward contracts" that would pay off after a specific number of months, and said the mass tort cases "had settlement funds just waiting in escrow to be claimed," the SEC says. But "In fact, the investments were highly speculative and risky."

 Also, the SEC says, it is illegal for an attorney and a non-lawyer — such as Aldridge and the 250 investors — to share legal fees. Such fee-splitting "is widely prohibited, and therefore potentially unenforceable."

 Aldridge came up with the idea to market investments in medical litigation in mid-2013, but had trouble finding a lawyer to join him. Before meeting Catipay, he interviewed approximately 100 attorneys, who all "declined because of the ethical prohibition against fee-sharing with non-lawyers," according the complaint.

 After beginning in October 2013, Aldridge and Catipay's venture attracted $11.7 million, generally in small investments ranging from $5,000 to $10,000. The two struck a deal with a personal injury lawyer in Seattle — called "Attorney A" in the complaint — to represent any tort plaintiffs they found and to give their company one-third of any fees he collected.

 But they spent only about a third of the investors' money on looking for tort plaintiffs. And by early this year, those marketing efforts had returned less than $10,000 in attorneys' fees from the plaintiffs, the SEC said.

 The men spent most of the money on themselves. Aldridge withdrew $3.7 million of the investors' money, including $1 million to buy a condo and another $1 million to pay state and federal taxes, the SEC says.

 Catipay took $1.87 million for himself. After a dispute and lawsuit between the partners, Catipay acquired Aldridge's condo in a settlement.

 The SEC seeks freezing of assets, disgorgement of ill-gotten gains and civil penalties.
 Attorneys representing Catipay and Aldridge did not return calls seeking comment Monday.

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Attorney Targeted Elderly in Ponzi, Says SEC

SEC Investor Advocate to Congress: 'Appropriate Limits' Needed in Elder Fraud Rules

In FY 2015 report to Congress, Fleming says SEC used funding boost to add 91 exam staff

Rick Fleming

The Securities and Exchange Commission’s Investor Advocate, Rick Fleming, told lawmakers that he will spend part of his time this year watching the progress of proposed rules issued by the North American Securities Administrators Association and the Financial Industry Regulatory Authority to allow a broker-dealer or investment advisor to delay disbursement of funds if elder financial fraud is suspected.

Fleming told lawmakers in his FY 2015 report to Congress that while he believes financial firms “should have the ability to pause disbursements of funds, contrary to the explicit instructions of a customer, if there is a reasonable belief that financial exploitation is occurring,” if the suspicion is “strong enough to warrant a pause on a disbursement, it also should trigger an obligation to report the suspicious activity” to adult protective services (APS).

His office, Fleming said, will comment “as appropriate” on the NASAA and FINRA plans, and will also examine other measures that need to be considered at the federal level to protect seniors and other vulnerable adults from financial exploitation.

Fleming told attendees at the MarketCounsel Summit in early December that his office is “actively” assessing what type of rule the agency should promulgate for RIAs to protect elderly or handicapped customers’ accounts if there is a reasonable belief of elder fraud.

In his report to Congress, Fleming said that any elder fraud rule or law “must balance two potentially conflicting goals: to respect every individual’s right to self-determination, and also to prevent his or her unwitting financial self-destruction. We should remove undue restraints that keep financial professionals from acting to protect their clients. Yet if we confer new authority on broker-dealers and investment advisors to intervene in clients’ accounts when they suspect elder exploitation, we must place appropriate limits on that authority.”

The challenge, he said, “is to strike the right balance.”

For this type of reporting mechanism to be effective, Fleming said in his report, “it is necessary for APS to have adequate resources to do the job. Sadly, those resources appear to be lacking.”

Congress authorized $125 million to fight elder financial abuse when it passed the Elder Justice Act in 2010, but “the first actual appropriation came in 2015 and amounted to $4 million,” Fleming said. “Additional funding would go a long way toward helping APS address the financial exploitation of seniors, a problem that likely will grow in the coming years.”  (Continue Reading)

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SEC Investor Advocate to Congress: 'Appropriate Limits' Needed in Elder Fraud Rules

SEC Sanctions MI Broker for Bilking Elderly Investors

The Securities and Exchange Commission has imposed a fine and a cease-and-desist order against Lewis J. Hunter for defrauding elderly clients of over $300,000.

In September 2010 and February 2011, the SEC found that Hunter recommended to two long-time elderly clients that they make a $250,000 investment in a Canadian bank. Hunter repeatedly assured the clients that the investment was guaranteed and provided the clients with Guaranteed Investment Certificates (GICs) from the bank. The GICs were purportedly issued by HSBC Bank Canada and guaranteed 15% monthly interest payments for two years.

However, Hunter fabricated the GICs and used the clients' money to pay various personal and business expenses, the SEC says. In addition, Hunter used the clients' own funds to make the 15% interest payments the clients expected to receive from the investment. Hunter also used the clients' own funds to repay a personal loan the clients had made to Hunter.

In a separate instance, Hunter persuaded a third long-time elderly client to make a $54,000 investment in U.S. Bank, the SEC found. Hunter guaranteed the client that he would not lose any money. However, Hunter never invested the money and instead used the funds to repay the personal loan he had taken with the first clients and for other personal and business expenses.

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SEC Sanctions MI Broker for Bilking Elerly Investors