SEC halts USD23m Ponzi scheme and affinity fraud targeting Haitian-American investors

Date: Wednesday, January 7, 2009
Author: Hedgeweek.com

The Securities and Exchange Commission has obtained an emergency court order to halt an alleged Ponzi scheme and affinity fraud that collected more than USD23m from thousands of investors in the Haitian-American community throughout the US through a network of purported investment clubs.

The SEC alleges that Creative Capital and its principal, George L. Theodule, began conducting the scheme as early as November 2007 by urging investors to form investment clubs to funnel funds to themselves. Theodule guaranteed investors a 100 percent return on their investment within 90 days based on his claimed successful trading of stocks and options.

According to the SEC's complaint, investors also were promised that Creative Capital's trading profits were being used to fund new business ventures, including some to benefit the Haitian community in the US, Haiti and Sierra Leone.

The SEC alleges that Theodule has lost at least USD18m trading stocks and options over the past year, and that Creative Capital merely repaid earlier investors with monies collected from new investors in typical Ponzi scheme fashion. The regulator also claims that that Theodule has commingled investor funds with his personal funds and misappropriated at least USD3.8m for himself and his family.

'This alleged Ponzi scheme preyed upon unsuspecting members of a close-knit community, attempting to take advantage of the trust they had in each other,' says Linda Chatman Thomsen, director of the SEC's division of enforcement. 'As always, investors need to be wary of investment opportunities that guarantee results and tout extraordinary returns.'

David Nelson, director of the SEC's Miami regional office, adds: 'This case demonstrates that individuals will often rely on a shared affinity to gain investors' trust. In this case, Theodule allegedly abused that trust to con thousands of investors in the Haitian-American community.'

Judge Donald M. Middlebrooks, the US district judge for the Southern District of Florida, has placed Creative Capital under the control of a receiver to safeguard assets, as well as other emergency orders, including temporary restraining orders and asset freezes.

The SEC's complaint also alleges that the defendants lied to investors about the safety and security of their deposits. Theodule directed prospective investors to form investment clubs with the assistance of a purported self-regulatory agency called Smart Investment Management Services, whose supposed independent verification of their deposits was touted as an added measure of safety and security. In reality, SIMS was a private company run by a former Creative Capital employee.

The SEC says that of more than USD18m deposited in brokerage accounts, Theodule lost approximately 97 percent of the funds trading stocks and options and has never generated net trading profits.

The defendants' claims that Creative Capital's trading profits were used to fund new business ventures benefiting the Haitian community in the US and Haiti and others in Sierra Leone were false because in reality, there were no trading profits.

In addition to the emergency relief obtained, the SEC's complaint seeks disgorgement of the defendants' ill-gotten gains, financial penalties, and permanent injunctions barring future violations of the anti-fraud provisions of the federal securities laws.