Private Equity Wannabes Charged in $22 Million Ponzi Scheme

SOURCE: THE NEW YORK TIMES

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The Securities and Exchange Commission sued two Florida men, claiming that they had defrauded teachers and retirees in a $22 million Ponzi scheme by posing as a private equity fund while enriching themselves.

The two, James D. Risher and Daniel Sebastian, fraudulently lured more than 100 investors with promises of annual returns of as much as 124 percent, the S.E.C. said Monday in a lawsuit filed in United States District Court in Florida. Mr. Risher, who spent 11 of the last 21 years in jail, used customers’ funds on jewelry, gifts and real estate in North Carolina and Florida, the S.E.C. said.

“Risher, who masqueraded as a highly successful equity trader, teamed up with Sebastian to tout sophisticated trading strategies they claimed would generate substantial profits,” Eric Bustillo, head of the S.E.C.’s regional office in Miami, said in a statement. “Instead, Risher and Sebastian used investors’ life savings and retirement nest eggs to line their own pockets.”

Mr. Sebastian attracted clients from his previous job as an insurance broker, persuading at least one investor to liquidate an annuity and invest the proceeds in the fund, according to the S.E.C. The two men paid themselves millions of dollars in fees and sent customers false account statements, the S.E.C. said.

Burton Wiand, Mr. Sebastian’s lawyer, said in a telephone interview that his client had been “deceived” by Mr. Risher and voluntarily reported the scheme to the S.E.C. and criminal authorities once it became evident to him. Mr. Sebastian has since cooperated with government officials as well as lawyers representing former clients, Mr. Wiand said.

Mr. Risher was indicted on related criminal charges June 29. A phone call to Adam Allen, a public defender who has represented Mr. Risher in the criminal matter, was not immediately returned.