The Securities and Exchange Commission (the "Commission") initiated civil proceedings against a former hip-hop promoter who orchestrated a Ponzi scheme that bilked investors out of $5 million. Tyrone Gilliams Jr., 44, was charged with multiple violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 in connection with a scheme that purported to invest in derivatives of United States Treasury securities. The Commission is seeking permanent injunctive relief, along with civil monetary penalties and disgorgement of ill-gotten gains.
From at least June 2010 to August 2011, Gilliams and TL Gilliams, LLC ("TLG") solicited potential investors by representing that he would pool and use investor money to make large purchases and sales of Treasury STRIPS. STRIPS are the individual interest payment components of a United States Treasury bond, payable semi-annually over the life of the bond. Gilliams told investors that the trading program would yield weekly returns of five percent and was virtually risk-free. Several investors, including the the director of a family foundation, invested a total of over $5 million with Gilliams. Over the next year, Gilliams paid nearly $100,000 in what were described as profits from the trading operation.
However, rather than use investor funds to purchase STRIPS, Gilliams failed to invest any of the funds. Instead, Gilliams misappropriated investor funds for a variety of personal uses, including paying for his children's tuition, buying jewelry, and paying for international travel. In addition to spending nearly $1 million to sponsor a black-tie gala at the Philadelphia Ritz-Carlton, Gilliams also wired approximately $1.6 million to a purported gold trading operation in Ghana, Africa.
After demands from investors to return their principal in late 2010, Gilliams claimed, falsely, that he could not return their funds as they were frozen in ongoing civil litigation. Shortly after, in early 2011, Gilliams filed documents with the Commission indicating his intent to raise an indefinite amount of funds for Black Box Funds, LLC. Gilliams was arrested last month for his involvement in the scheme and faces wire fraud and securities fraud charges.
A copy of the SEC Complaint is here.