Aggregated News From Investment Management Regulators

SEC Shuts Down Fraudulent Investment Adviser Targeting Senior Citizens

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The Securities and Exchange Commission today announced that it has filed an emergency action and obtained a temporary restraining order and asset freeze against a California-registered investment adviser and his entities to halt an ongoing Ponzi scheme targeting senior citizens in Southern California.

According to the SEC’s complaint, from at least January 2018 through the present, Paul Horton Smith Sr. offered and sold securities in his company Northstar Communications LLC, and used his investment advisory firm eGate LLC and insurance and estate planning company Planning Services Inc. to market the securities.  Smith and Northstar through free workshops and other investor events allegedly promised investors guaranteed annual interest payments between 3 percent and 10.5 percent if they invested in so-called “private annuity contracts.”  In reality, as the complaint alleges, Smith did not invest the funds raised in any securities and instead used new investor funds to pay investor returns in a Ponzi-like fashion.  According to the complaint, Northstar raised more than $5.6 million from at least 35 investors and paid out $5.2 million to those investors as interest payments or principal returned.  Smith also allegedly used investor funds to settle investor fraud lawsuits.

The SEC’s complaint, filed on May 19 and unsealed late yesterday in U.S. District Court for the Central District of California, charges Smith, Northstar, eGate, and Planning Services with violating the antifraud provisions of the federal securities laws. The complaint seeks injunctions, the return of ill-gotten gains plus interest, and civil penalties.

On May 20, in addition to granting a temporary restraining order and an asset freeze, the court ordered an accounting and appointed a temporary receiver.  A hearing is scheduled for June 3, 2020, to consider continuing the asset freeze, issuance of a preliminary injunction, and appointment of a permanent receiver.

“As alleged in our complaint, Paul Horton Smith Sr. raised millions of dollars by touting his purported investment expertise and guaranteeing returns,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.  “Investors should be wary of investments promising no risk and high returns, which are classic warning signs of investment fraud.”

The SEC’s Office of Investor Education and Advocacy has issued investor alerts on frauds targeting seniors and Ponzi scheme red flags.  Additional information is available on Investor.gov and SEC.gov.

In a parallel action, the U.S. Attorney’s Office for the Central District of California announced on May 21 that it filed a criminal complaint against Smith.

The SEC’s investigation was led by David S. Brown with assistance from Dora Zaldivar, and was supervised by Finola H. Manvelian in the Los Angeles Regional Office.  The litigation will be led by John B. Bulgozdy and supervised by Amy Jane Longo.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Central District of California, the Federal Bureau of Investigation, and the California Department of Business Oversight.

Regulator Information

Abbreviation: SEC
Jurisdiction: United States

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