SEC Charges Perpetrator of Washington-Area Ponzi Scheme

November 18, 2011

The SEC  charged a Bethesda, Md. man and several family members and friends with conducting a multi-million dollar Ponzi scheme targeting investors in the Washington D.C. metropolitan area.


The SEC alleges that Garfield M. Taylor lured primarily middle-class residents in his community with little to no investing experience to invest in promissory notes issued by his two companies that engaged in purportedly low-risk options trading.  Taylor urged investors to refinance their homes and use any available means to invest, including their personal savings and retirement funds.  He promised returns as high as 20 % per year and falsely assured investors that their investments would be protected by a “reserve account” or that he would employ a “covered call” trading strategy that would not touch the principal amount of their investment.

According to the complaint, Taylor and his companies instead engaged in very high-risk, speculative options trading and suffered massive losses.  Taylor relied on money from new investors to pay returns to earlier investors, and siphoned $5 million in investor funds to pay family and friends and for other personal uses, including $73,000 to the private school his children attended.  The SEC alleges that the Ponzi scheme defrauded more than $27 million from 130 investors from 2005 to 2010.  The scheme collapsed in 2010 when the companies’ accounts were depleted by the trading losses and interest payments to investors.

According to the SEC’s complaint, Taylor and the others jointly prepared and finalized a PowerPoint presentation for prospective investors that contained false and misleading statements regarding the nature of the company’s options trading strategy, the anticipated rate of return, the protections offered by its outside accountant, and the overall risk level.  They pitched the presentation to potential institutional investors and charitable organizations.

The SEC alleges that in order to maintain a steady flow of new investor money, Taylor induced current investors and others to solicit and refer new investors to him in exchange for commission payments based on the amounts invested.  Taylor, who was not a licensed securities broker, persuaded several individuals to give him online access to their personal brokerage accounts so he could place trades and give them a promised share of any profits generated.

Click here to access this press release.


Categories

Enforcement Actions, Investment Advisers