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SEC Files Complaint Against a Group of Individuals for Allegedly Defrauding Investors

The SEC has filed claims against a group of individuals with a scheme alleged to have illegally taken hundreds of thousands of dollars from a group of investors.  The SEC has charged Jeffery D. Smith (“Smith”) and Joseph Carswell (“Carswell”) with allegedly defrauding four investors out of at least $775,000.

The pair allegedly fabricated two companies, Atlantis Capital, LLC (“Atlantis Capital”) and Capital Funding, LLC (“Capital Funding”).  These companies seem to never have been legally formed limited liability companies.  Both men allegedly told investors, verbally and in writing, that they could acquire medium term notes, bank guarantees, and standby letters of credit worth millions of dollars.  They would do this for a fee of anywhere between $100,000 and $250,000.

The medium-term notes, bank guarantees, and standby letters of credit would then be monetized, and the monetized proceeds would then be loaned, in part, to the investors as non-recourse loans, with the rest being invested.  A non-recourse loan is a loan secured by collateral, usually property.  If the borrower fails to repay the loan, then the lender can seize the property, but if there is a shortfall in what the lender is owed, the lender cannot go after the borrower’s other assets to try to obtain additional funds.

 

Smith and Carswell allegedly promised returns of 35% per week, which would be used to pay off the investors’ loans.  The pair told investors that this was risk free investment.

A third defendant Michael W. Fullard is alleged to have found at least one of the investors and was paid a fee for his work.  Fullard also helped process documents from the investor to be provided to the escrow agent.  According to the SEC, documents provided by the bank show that the defendants allegedly received their ill-gotten gains right after the investments were made.  On some occasions, this occurred the very same day that the investments were made.  None of the investors received the 35% gains that were from promised by the defendants.

 

The Commission is seeking disgorgement and civil monetary penalties pursuant to Sections 20 and 22 of the Securities Act and Sections 21(d) and 21(e) of the Exchange Act.

 

If you want to read more about this case, then click on the following link: https://www.sec.gov/litigation/complaints/2016/comp23685.pdf.  This case provides a good example of the need for investors to research the companies in which and through which they are investing.  It also highlights the fiduciary duties and obligations owed to investors.  If you have any questions about the legal issues raised by this case in connection with your own activities, then please contact Tomlinson & Shapiro at (312) 715-8770.

This post was written by Michael Tomlinson

Michael Shapiro
(312) 715-8770
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