RIA Compliance Blog
Earlier this month, the Securities and Exchange Commission (SEC) filed a civil lawsuit against four individuals who are alleged to have defrauded seniors through so-called “Free Dinner” investment seminars conducted by their investment adviser firm. The SEC alleged that Joseph Andrew Paul and John D. Ellis, Jr., who managed and jointly owned Paul-Ellis Investment Associates, LLC (PEIA), created materially false and fraudulent marketing material in order to induce Florida residents to attend the “Free Dinner” seminar. More specifically, the SEC alleged that the marketing materials included performance return statistics that were not consistent with the actual track record of the firm, but rather had been copied and pasted from another advisory firm’s website.
The individuals were also alleged to have recruited James S. Quay of Atlanta, Georgia and Donald H. Ellison of Palm Beach, Florida, who allegedly used the false material to mislead seniors who responded to the “Free Dinner” invitation. The SEC further alleges that Mr. Quay used an alias, Stephen Jameson in order to conceal his true identity. Mr. Quay was previously involved and was held liable in an enforcement action brought by the SEC in 2012. Before that, Quay was an active sales agent in a multi-million dollar Ponzi scheme operated by an attorney in Atlanta, Georgia. According to the SEC, Quay was also convicted of tax fraud in 2005.
The complaint, which was filed in the United States District Court for the Eastern District of Pennsylvania, alleged that Paul and Ellis also falsely claimed that they managed approximately $164 million in client assets and that their investment strategies generated annual returns between 8.5% – 56%. In reality, according to the complaint, PEIA never had more than $4 million in management and never achieved returns consistent with those that were represented in the marketing material.
Although Paul and Cillis initially invested some of the funds raised for PEI, during the later stages of the fraud, they ceased investing the funds at all and misappropriated the funds in order to pay legal bills, employee salaries and personal expenses. They are also alleged to have diverted approximately $385,000 to Quay, who is alleged to have used the funds for his own personal trading.
Parker MacIntyre provides legal and compliance services to investment advisers, broker dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our website for more information.