The Securities and Exchange Commission (SEC) has charged two Californian men and their investment firm with operating a Ponzi scheme as they purported to specialise in catering to middle-class investors and securing exorbitant returns by investing in hot pre-IPO stocks.
Investors were offered opportunities previously only available to the one-percenters.
According to SEC, instead of using the firm’s purported proprietary trading models and investing in pre-IPO shares of well-known tech companies as promised to investors, Jaswant Gill and Javier Rios personally pocketed at least $2.8 million in investor funds, some of which was used to fund a lavish lifestyle. The case mirrors a similar instance last month, in which the SEC charged two unregistered brokers for pocketing $6 million in investor funds by creating exclusivity around their offering.
KVB PRIME Gains Key UK Influence by Sponsoring Major Finance ConferenceGo to article >>
The men never invested in any pre-IPO shares, and have been using money from new investors to pay supposed returns to earlier investors. They raised around $10 million through their firm, JSG Capital Investments, by catering to average retail investors and promising them exclusive investment opportunities “previously only available to the one-percenters”, with guaranteed annual returns of up to 60 percent.
According to the SEC’s complaint, Gill in particular used fake credentials, telling investors he founded his firm after serving as a managing director at Morgan Stanley. He also bragged about partnerships with several leading venture capital firms. Gill, Rios, and JSG Capital Investments are not registered with the SEC or any state regulator.
Jina Choi, Director of the SEC’s San Francisco Regional Office, commented: “We allege that Gill and Rios enticed middle-class investors by promising access to highly coveted investment opportunities they claimed were typically reserved for the rich. Exclusivity, exorbitant returns, and exaggerated credentials are all classic hallmarks of a Ponzi scheme, and investors can protect themselves by heeding these red flags and checking whether the person pitching the investments is properly registered to sell them.”
SEC’s complaint seeks permanent injunctions plus disgorgement and monetary penalties from Gill, Rios, JSG Capital Investments and related entities. The agency has also obtained a court-ordered asset freeze against them.