The SEC has announced charges against a California-based corporation and its principals for a scam that defrauded the elderly. The Commission charges that Renaissance Asset Fund, Inc., Ronald J. Nadel, and Joseph M. Malone raised more than $16 million from more than 190 investors nationwide.
In what the regulator called a classic Ponzi scheme, Nadel and Malone solicited aged investors through Jehovah's Witnesses congregations and used the proceeds to fund their lavish lifestyles.
The SEC's complaint, filed in a California federal court, charges Renaissance, Nadel and Malone with violating federal securities laws, violating broker-dealer registration provisions and seeks disgorgement of ill-gotten gains with prejudgment interest, and civil penalties, among other punishments.
"Fraud against seniors and affinity groups is particularly egregious because it is perpetrated through abuse of trust. The filing of these actions reflects the Commission's determination to protect seniors and other investors from securities fraud," said SEC Enforcement Division Director Linda Chatman Thomsen.
According to the complaint, Nadel and Malone sold promissory notes to investors between March 1999 and April 2004. The notes related to a variety of purported projects, including a general fund, an outlet mall, an international currency exchange and a Swiss bank. Some of these projects did not exist, and others were unsuccessful.
Regardless of that, Nadel and Malone told investors that their investments would earn returns ranging from 10% to 25% in as little as four months. They also sent false quarterly account statements to investors, outlining the fictional profits their investments had earned.
Renaissance invested approximately $1 million of the funds it raised in business projects, but Nadel spent most of the investors' money himself. As investors started wanting their money back, Nadel engaged in a series of stalling tactics, including soliciting rollovers of profits and principal into other Renaissance programs and making partial repayments from funds contributed by other investors.
Approximately $1.5 million to $2 million was paid out to investors using funds deposited by other investors. In typical Ponzi scheme fashion, payments to existing investors were funded almost completely by money received from new investors to the scheme.
Nadel also diverted approximately $2.3 million in investor funds to himself directly and through nominee accounts, and paid Malone at least $230,000. Nadel used the money to fund unrelated businesses, as well as for personal expenses, such as leases on cars, country club memberships and other retail purchases and services.
As with all Ponzi schemes, once the flow of new investors stopped, the house of cards built by Nadel and Renaissance collapsed and most investors were left empty-handed.
At the same time that these actions were filed, the SEC settled cease-and-desist proceedings against the scheme's coconspirators, Senior Resources Asset Fund, LLC and Kenneth E. Baum. Baum acted through Senior Resources, a California company that provides financial advice to seniors, to sell Renaissance's bogus promissory notes to elderly investors. Both Baum and Senior Resources consented to cease-and-desist from selling unregistered securities and from acting as an unregistered broker-dealer.
The SEC announced the charges on July 17th, the same day the regulator convened its first ever Seniors Summit, a conference examining how to better protect older Americans from investment fraud and abusive sales practices.