Three New York men were charged both civilly and criminally in what authorities allege was a Ponzi scheme operated as a landscaping business. Eric Aronson, 43, Vincent Buonauro Jr., and Robert Kondtratick each face criminal charges stemming from their executive positions in PermaPave Companies, a conglomerate of related companies controlled by Aronson. Additionally, the Securities and Exchange Commission separately filed an emergency action seeking an asset freeze of the individuals and companies.
According to authorities, the various PermaPave entities ("PermaPave") engaged in a Ponzi scheme since at least March 2006, selling unregistered promissory notes and "use of funds" agreements to investors. Investors were told that their funds would be used to purchase PermaPave pavers from Australia for subsequent resale in the United States. Aronson and the other defendants told potential investors that there existed an enormous backlog of orders for the pavers, and that investors would be repaid out of profits from the guaranteed sales. Investors were promised monthly returns ranging from 7.8% to 33.3%, which equated to annual returns of up to 400%.
When PermaPave began to fall behind on payments in late 2008, investors were mollified by an agreement to exchange the promissory notes for convertible debentures with a lower interest rate and a deferral of principal due. In total, at least 140 investors entrusted $16 million with the company. In 2009, investors were told that the company had been sold, and urged to convert their debentures into equity shares. In reality, the company had not been sold, and had never been profitable, instead operating at substantial losses. Additionally, only approximately $600,000 was used to purchase the pavers, and those pavers were sold at a substantial loss. Unable to use profits from the pavers to repay investors, PermaPave and its principals instead used $10 million in investor funds to make fictitious interest payments. Each of the defendants is also accused of misappropriating investor funds for personal gain.
Ironically, Aronson pled guilty to fraud more than a decade ago in an unrelated offering scam. According to authorities, he used proceeds of the current scheme to make court-ordered restitution payments to victims of the scheme to which he pled guilty in 2000 and later served time in federal prison. While it is customary to seek all 'fraudulent transfers' made by individuals carrying out a Ponzi scheme, it will no doubt add a layer of complications to any effort by a court-appointed trustee or receiver to pursue Aronson's previous victims for these payments.
The SEC is seeking a permanent ban on the defendants' future ability to serve as an officer or director of a public company, the disgorgement of ill-gotten gains, and civil monetary penalties.
A copy of the SEC Complaint is here.
A forum launched by victims provides interesting insight into the operation.