SEC, U.S. Attorney Prosecute Miami Ponzi Scheme That Targeted Retirees
A Miami resident is facing federal criminal charges for allegedly running a Ponzi scheme targeting retired public sector workers. Phil Donnahue Williamson has already settled civil charges brought by the U.S. Securities and Exchange Commission, agreeing to repay nearly $750,000 to investors. The U.S. Attorney’s Office in Miami separately charged Williamson with investment advisor fraud.
SEC v. Williamson
According to the SEC’s civil complaint, Williamson sold shares in his limited liability company, Sterling Investment Fund, to “at least seventeen investors.” The Sterling Fund was supposed to invest in “distressed properties” in Florida and Georgia. Sterling’s only asset was its ownership of another LLC, Allied Mortgage Investment Fund, which was also controlled by Williamson.
Williamson told investors—whom the SEC described as being retired or approaching retirement—the Sterling Fund was a no-risk investment which would yield annual returns of 8%-12%. Investors subscribed to the Sterling Fund by rolling over their retirement accounts to a third-party custodian, which then vested Williamson with “full control” as financial representative. This enabled Williamson to deduct $13,000 from client accounts for “advisory services,” which was not disclosed to investors.
The SEC said the Sterling Fund “devolved into a Ponzi scheme almost immediately” because Williamson made no investments beyond the ownership of Allied. Williamson provided the third-party custodian with false valuations to make it appear investors were owed a return. And as investors began to ask questions about why promised returns did not materialize, the SEC said Williamson “moved money between nineteen bank accounts” to cover up his actions.
Williamson also blatantly misappropriated client funds. The SEC cited the example of a retired Miami pastor and schoolteacher, who invested $125,000 with the Sterling Fund. The SEC said Williamson immediately transferred $34,000 of this investment to his personal bank account, which he used to pay his personal bills. He then used an additional $24,400 to pay off prior investors in the Sterling Fund.
The SEC charged Williamson with four violations of the Investment Advisers Act of 1940. Williamson chose not to contest these charges. He agreed to civil settlement with the SEC, under which he must pay $748,050.01 in restitution to his victims. The settlement must still be approved by a federal judge in Miami.
Separately, the U.S. Attorney charged Williamson with a single criminal violation of the Investment Advisers Act. If convicted, Williamson faces a maximum sentence of five years imprisonment. Despite the civil settlement, Williamson is still presumed innocent in the criminal case unless proven guilty.
The Risks of Unregistered Investment Advisers
The SEC noted that although many of Williamson’s victims were accomplished professionals—including a former police chief and a school principal—they were not “sophisticated” investors. This led them to misplace their trust in Williamson as their investment adviser. Indeed, Williamson never even registered as an investment adviser with the SEC or the State of Florida. This case demonstrates why it is so important to learn as much as you can about your stockbroker or financial advisor before you invest with that advisor. The SEC and FINRA both have websites that allow you to check on your broker and investment advisor, FINRA at http://brokercheck.finra.org/Search/Search?gclid=CJ64kpOO_sUCFY4XHwodMI4Azw and the SEC at http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx .
Investors must always be wary when dealing with an unregistered advisor or buying into supposedly “risk-free” investments. If you have been the victim of an unregistered investment advisor or stockbroker or believe you are the victim of a fraud, contact experienced Florida securities and investment attorney, contact Gregory Tendrich, P.A.