The Securities and Exchange Commission (SEC) has filed an emergency action and obtained a temporary restraining order and asset freeze against a California-registered investment adviser and his entities.
This was done to halt an ongoing Ponzi scheme targeting retirees in southern California.
According to the SEC’s complaint, from at least January 2018 onwards, Paul Horton Smith offered and sold securities in his company Northstar Communications, and used his investment advisory firm eGate and insurance and estate planning company Planning Services to market the securities.
Details
Smith and Northstar, through free workshops and other investor events, allegedly promised investors guaranteed annual interest payments between 3% and 10.5% if they invested in so-called “private annuity contracts”.
The complaint alleges that Smith did not invest the funds raised in any securities and instead used new investor funds to pay investor returns in a Ponzi-like fashion.
According to the SEC, Northstar raised more than $5.6m (£4.54m, €5.1m) from at least 35 investors and paid out $5.2m to those investors as interest payments. Smith also allegedly used investor funds to settle investor fraud lawsuits.
Charges
The SEC’s complaint charges Smith, Northstar, eGate, and Planning Services with violating the antifraud provisions of the federal securities laws.
The complaint seeks injunctions, the return of ill-gotten gains plus interest, and civil penalties.
On 20 May, in addition to granting a temporary restraining order and an asset freeze, the court ordered an accounting and appointed a temporary receiver.
A hearing is scheduled for 3 June 2020, to consider continuing the asset freeze, issuance of a preliminary injunction, and appointment of a permanent receiver.
“As alleged in our complaint, Paul Horton Smith Sr raised millions of dollars by touting his purported investment expertise and guaranteeing returns,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office.
“Investors should be wary of investments promising no risk and high returns, which are classic warning signs of investment fraud.”
In a parallel action, the US Attorney’s Office for the Central District of California announced on 21 May that it filed a criminal complaint against Smith.
