Posted by Mark Pugsley.

Today the Salt Lake City office of the Securities and Exchange Commission filed a lawsuit against Raymond P. Morris, E&R Holdings, LLC, Wise Financial Holdings, LLC, Momentum Leasing, LLC, James L. Haley, Cornerstone Capital Fund, LLC, Vantage Point Capital, LLC, Jay J. Linford, Freedom group, LLC, and Luc D. Nguyen (an attorney). The suit alleges that the named individuals ran a Ponzi scheme that bilked scores of investors out of “no less than $60 million.”

The complaint alleges that from March 2007 through January 2009, Raymond Morris offered and sold unregistered promissory notes to investors. In the course of soliciting these loans the SEC alleges that he and the other defendants made misrepresentations to investors to convince them that they were purchasing high yield notes that were risk free. Morris allegedly told investors that their funds would be deposited into a secure account and would be used only to verify deposits.

However, instead of using the funds as represented Morris allegedly used investor funds “for personal expenses, including a luxurious home and several sports cars, and for making Ponzi payments to create an illusion of a successful investment.”

The Pitch

According to the SEC’s Complaint, Morris told investors he was raising capital for an “exclusive investment fund” based on a “capital leasing concept.” Morris advised investors that their principal would be deposited into a secure account that he had sole control over and that investment funds would never leave the account because they would only be used for “verification of deposit” purposes by certain private traders. Morris further told investors these private traders would obtain large lines of credit and invest the proceeds in ways that would generate a very high monthly interest rate.

No Risk?

The complaint states that these defendants repeatedly represented that the investment was risk-free. They said they money was never at risk:

  • Paragraph 41: Linford fraudulently raised about $1 million for the Fund by misrepresenting that the Fund paid returns as high as 100% in seven days with no risk to investor principal.
  • Paragraph 47: Morris orally assured investors that their investment was free of risk
  • Paragraph 60: Haley also falsely advised investors that their investment carried no risk and that the high returns were guaranteed.
  • Paragraph 75: Nguyen represented to investors that their principal would be safe and essentially risk-free.

My comment: Just because someone tells you there is no risk does not mean that its true. Investors should verify this is the case. Among other things you can ask for trading records and/or bank accounts. Get a list of investors and talk to other investors. Check litigation history for all of those involved and look for prior bankruptcies. Call the bank to verify deposits. Call the SEC and the Utah Division of Securities to ensure the issuers are licensed and haven’t been the subject of an enforcement action. Do your research.

The returns they promised were outrageously high

Here is what the complaint alleges about the returns investors were promised:

  • Paragraph 26: Morris said the Fund was started by the owner of the Houston Astros and had generated 20% returns per month for about eight years.
  • Paragraph 41: Linford fraudulently raised about $1 million for the Fund by misrepresenting that the Fund paid returns as high as 100% in seven days with no risk to investor principal.
  • Paragraph 45: Morris further advised investors that high returns of 20% per month or more would be generated by allowing private traders to verify the deposited funds and obtain lines of credit to invest in various ways.
  • Paragraph 60: Haley told his investors that returns of 12-20% per month would be generated by allowing private traders to use the funds to obtain lines of credit and invest the proceeds.

My comment: They promised returns as high as “100% in seven days with no risk to investor principal”? Wow. If it sounds too good to be true, it probably is.

The moral of the story

I have no personal knowledge of the events that are the subject of this lawsuit, and do not currently represent anyone in this case, but these facts are similar to many others I have been involved with. As is often the case, many of the investors who lost money in the Fund were inexperienced, unsophisticated and had few assets. And yet they were lured by promises of high returns with no risk to invest what little money they had (and some cases money they didn’t have) in Morris’s Fund. Now the money is gone.

It pains me to learn that many of the investors may have been persuaded to invest because of representations from a lawyer who claimed to be an “SEC Attorney.” I do not know Mr. Luc Nguyen but if the allegations in the complaint are true it is very troubling for him and for our profession. According to the records of the Utah State Bar Mr. Nguyen is indeed a licensed attorney in Utah.

The SEC has alleged that Nguyen “told investors that the Fund was ‘one of the best he had ever seen.’ Nguyen also falsely told investors that he had done extensive due diligence [and that] he had personally met with the attorneys representing the supposed trading companies involved in the Fund and that he had received copies of all operating agreements between the leasing companies and the trading companies.” Unfortunately these statements were apparently false.

Here is a link to the SEC Complaint.

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