SEC Cracks Down On $7 Million Alleged Ponzi Scheme

Tuesday, April 19, 2011 00:37
SEC Cracks Down On $7 Million Alleged Ponzi Scheme

Tags: sec

Another sad report of advisors allegedly using new clients' savings to pay their own expenses. If the SEC's claims in this one are true, it's especially grotesque.

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The SEC  argues that over nearly three years, the Richmond, Virginia firm operated by Nicholas Skaltsounis sold at least 74 investors around $7.7 million in self-issued stocks and bonds.


These securities carried claims of 9% to 12.5% annualized returns, but do not appear to have paid off for any of the investors -- most elderly -- who bought in.


Redemptions were apparently paid out from incoming flows.


What makes this story disturbing is the relatively small size of the payout for the firm.


Legitimate advisory shops can generate $7.7 million over three years without having to sell dubious securities -- an RIA could maybe do it with a little over $200 million in AUM -- so this is no Madoff-style ultimate temptation here.


But Skaltsounis reportedly paid himself $950,000 and used another $3.6 million to keep his companies from going bankrupt, so the scheme maybe generated "production" of $1 million a year.


And while the average account size was about $100,000, a lot of these clients were elderly retirees in places like rural Tennessee without much money to spare. They lost just about everything here.



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