The Securities and Exchange Commission (“SEC”) has filed a fraud lawsuit in federal court in Colorado against a group of companies known as “Financial Visions” and their principal, Daniel B. Rudden (“Rudden”), who allegedly bilked at least 150 investors in a $55 million alleged Ponzi scheme.

The SEC’s complaint charges that Rudden, operating under the name Financial Visions and through a group of companies, issued promissory notes to fund a line of business involving providing financing for funeral services and related expenses to consumers. The SEC alleges that Rudden/Financial Vision defrauded as many as 150 investors after promising them annual returns of 12% or more. Since 2010 or 2011, Rudden allegedly used new investor funds to pay interest and redemptions to existing investors and concealed the Financial Visions companies’ true financial performance and condition.

The SEC Complaint is accessible here.

The SEC charges that through July 2018, the Financial Visions Companies raised as much as $55 million from investors in multiple states through a promissory note offering. Financial Visions allegedly offered annual interest rates of 12% on promissory notes by earning profits through “life insurance assignments.” These “assignments” allegedly amounted to agreeing that a deceased person’s family members could pay for immediate funeral expenses at a later date by assigning life insurance proceeds to pay for these costs. According to the SEC, Financial Visions would then be reimbursed for the costs advanced, plus a 5% fee, upon receipt of the life insurance policy proceeds.

Rudden allegedly held this business out to investors as highly profitable, even though Financial Visions was not in fact earning sufficient income from its life insurance assignment business to pay interest and redemptions to its investors. Rudden allegedly began using new investor funds to pay interest and redemptions to existing investors- one mark of a Ponzi scheme- in 2010 or 2011.

Investors in non-conventional investments such as promissory notes and private placements should remain on alert for possible signs of fraud. In cases of Ponzi-type schemes, these may include:

• The promise of high returns with guarantees of little or no risk;
• Overly consistent returns with little or no volatility in the investment;
• Marketing through friends and family or through an affinity group such as a church, workplace or community organization;
• Overly complex or indecipherable investment strategies;
• Unregistered investments;
• Unlicensed seller or promoter;
• Suspicious investment documentation with errors;
• Failing to receive a scheduled payment;
• Encountering difficulty in exiting an investment and receiving cash.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have fallen victim to perpetrators of financial frauds, including Ponzi schemes. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Essex SEC Complaint

As alleged by the SEC, from 2014 – 2017, Mr. Iannelli attracted investor capital through the sale of promissory notes that paid a high rate of return (typically 8.5%, but as high as 10% per annum). In certain of its marketing materials, Essex claimed that 100% of investor funds would be utilized to purchase equipment, and that investors would be paid back on their investment within a 3-year time frame. In actuality, however, the SEC has alleged that Essex’s business was anything but profitable: “Unbeknownst to the investors… the representations Iannelli made about their investment were materially false and misleading.” By 2014, the SEC has alleged that Essex spent only $2.3 million, or approximately 9% of capital it had raised that year through the sale of promissory notes ($20 million) and certain bank loans ($6 million), to actually purchase equipment.

The SEC’s Complaint suggests that Defendants made Ponzi-like payments to investors, whereby “[E]ssex [used] the bulk of its revenues to pay back investors and banks instead of using it to purchase income generating equipment.” Between 2014 and 2016, Defendants allegedly used approximately $65 million of company revenue to pay back investors on interest due on their notes, as well as to satisfy certain bank lenders. Furthermore, the SEC has alleged in its Complaint that, as Essex’s financial condition deteriorated, Mr. Iannelli “continued to siphon millions of dollars out of the company in the form of discretionary bonuses and interest-free personal loans to himself.”

Mr. Iannelli, a resident of Santa Barbara, CA, is the president and founder of Essex. In 1974, he was charged by the SEC in connection with allegations that he violated the antifraud provisions of the federal securities laws by purportedly manipulating the price of stock through the purchase of over 100,00 shares of stock on behalf of clients, without their consent. See SEC v. Iannelli et al, Case No. 74-cv-3417, 1975 WL 348 (SDNY 1975). With regard to that matter, Mr. Iannelli consented to a permanent injunction, and later an order, permanently barring him from the securities industry (subsequently, in March 1976, Mr. Iannelli was convicted of criminal contempt for violating the 1974 permanent injunction).

Essex investors who suffered losses may be able to recover their losses in FINRA arbitration or litigation, depending on the circumstances. As we have discussed in prior blog posts, certain alternative investments — including investments in various equipment leasing funds — are often conducted through so-called private placements. In general, investing in a private placement is a risky proposition. To begin, private placements are often complex in nature (investors should be prepared to lose their entire investment) and typically are opaque insofar as investors only have limited information off which to make an ultimate decision as to whether an investment is warranted (as unregistered securities, private placements do not provide the same scope and depth of information as with other investments, such as publicly traded, registered stocks or mutual funds). The majority of private placements are offered pursuant to Regulation D (“Reg D”), an SEC regulation that allows private companies to raise capital without conducting a public offering. Finally, both the SEC and FINRA have provided ample guidance concerning the prevalence of fraud in connection with private placement transactions, in light of their lack of transparency and the general lack of regulatory oversight for such investments.

Furthermore, broker-dealers and registered investment advisory firms have a duty to ensure that their registered representatives and investment advisers are adequately supervised, a duty which includes monitoring their financial advisors in connection with outside business activities and/or sales of private placements. In instances when brokerage firms or registered investment advisors fail to adequately supervise their financial advisors, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct such as Ponzi schemes, and related misconduct. Investors with questions about a possible claim may contact us by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.