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SEC Takes Action Against $345 Million Ponzi-like Scheme

MerrillPublicly available records provided by the Securities and Exchange Commission on September 19, 2018 indicate that the SEC has obtained a court order halting “an ongoing Ponzi-like scheme” operated by Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski. According to an SEC news release, the scheme raised more than $345 million in funds from more than 230 investors.

The SEC’s complaint, filed in a federal district court in Maryland, alleges that Messrs. Merrill, Ledford and Jezierski promised investors that they would make “significant profits” via the purchase and resale of consumer debt portfolios. In reality, according to the SEC, the scheme involved “a web of lies,” as well as falsified documents and forged signatures that were used to entice investors. Per the SEC, “Rather than direct investor funds to the acquisition and servicing of debt portfolios as promised, the defendants allegedly used the funds to make Ponzi-like payments to earlier investors.” The complaint alleges that Mr. Merrill and Mr. Ledford stole $85 million or more of their investors’ funds and directed them toward the upkeep of their “lavish lifestyles,” for instance, directing $10.2 million on “at least 25 high-end cars,” $300,000 on a diamond ring, and “millions of dollars on luxury homes.”

According to the complaint, Mr. Merrill himself misappropriated “at least $45 million,” including the purchase of a home in Naples, Florida using $5.5 million of investors’ funds; over $2 million for home renovations; half a million dollars “for an interest” in a private jet; and “transferring approximately $1 million to casinos.” The complaint states additionally that the defendants paid about $197 million to their investors, and that these funds mostly “consisted of money received from investors,” consequently leading their investors to believe they were making a profit from their investments when in fact they were receiving other investors’ money. “As a result, many unsuspecting investors were victimized repeatedly and referred other prospective investors,” according to the complaint.

Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said in a statement: “The defendants touted their purported investment expertise to siphon millions of dollars from unsuspecting investors… We filed this action on an emergency basis to put a stop to this fraud and protect investors from further harm.” Kelly L. Gibson, the Associate Regional Director of the SEC’s Philadelphia Regional Office, added: “We allege that the defendants engaged in a brazen fraud, deceiving investors to perpetuate their wrongdoing and line their pockets with ill-gotten gains… Investors should be warned that low-risk, high-return investments that never lose should be a red flag.”

The SEC’s complaint names Mr. Merrill, Mr. Ledford, Mr. Jezierski, and their associated entities: Global Credit Recovery, LLC, Delmarva Capital, LLC, Rhino Capital Holdings, LLC, Rhino Capital Group, LLC, DeVille Asset Management LTD, and Riverwalk Financial Corporation. It charges them with violations of antifraud provisions of federal securities laws; the SEC’s request for an asset freeze, temporary restraining order, and appointment of a receiver was granted by the court. It seeks disgorgement and prejudgment interest, as well as financial penalties, in the pending complaint.