Northern California Fund Adviser Charged with Fraud

May 24, 2012

The SEC charged an investment adviser in Scotts Valley, California with running a $60 million investment fund like a Ponzi scheme and defrauding investors by touting imaginary trading profits instead of reporting the actual trading losses he incurred.
The SEC alleges that John A. Geringer, who managed the GLR Growth Fund, used false and misleading marketing materials to lure investors into believing that the fund was earning double-digit annual returns by investing 75% of its assets in investments tied to major stock indices.  In reality, Geringer’s trading generated consistent losses and he eventually stopped trading entirely.  To mask his fraud, Geringer paid millions of dollars in “returns” to investors largely by using money received from newer investors.  He also sent investors periodic account statements showing fictitious growth in their investments.
 The SEC stated that Geringer painted the picture of a successful fund weathering America’s financial crisis through a diversified, conservative investment strategy.  Instead, Geringer lost millions of dollars in the market, tied up remaining investor funds in a pair of illiquid private companies, and lied about it in phony account statements.
Geringer raised more than $60 million since 2005, mostly from investors in the Santa Cruz area, using fraudulent marketing materials claiming between 17% and 25% annual returns in each year of the fund’s operation, through investments tied to well-known stock indices like the S&P 500, NASDAQ, and Dow Jones.  Although the fund was started in 2003, marketing materials claimed 25% returns in 2001 and 2002 – before the fund even existed.  The marketing materials also falsely indicated a nearly 24% return in 2008 from investing mainly in publicly-traded securities, options, and commodities, while the S&P 500 lost 38.5%.
The SEC alleges that Geringer’s actual securities trading was unsuccessful, and by mid-2009 the fund ceased to invest in publicly-traded securities.  Instead, the fund invested heavily in illiquid investments in two private startup technology companies.  The rest of the money was paid to investors in Ponzi-like fashion and to three entities controlled by Geringer which are also charged in the SEC’s complaint.
According to the SEC, Geringer further lied to investors on account statements that falsely claimed “MEMBER NASD AND SEC APPROVED.”  The SEC does not “approve” funds or investments in funds, nor was the fund (or any related entity) a member of the NASD (now called the Financial Industry Regulatory Authority – FINRA).  Geringer also falsely claimed that the fund’s financial statements were audited annually by an independent accountant.  No such audits were performed.   
Click http://www.sec.gov/litigation/complaints/2012/comp-pr2012-101.pdf to access the administrative action.


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Investment Advisers, Investment Companies