The Securities and Exchange Commission filed charges against two Florida men accused of operating a Ponzi scheme that raised over $20 million from investors mainly consisting of Florida teachers and retirees. In a complaint filed today, James Davis Risher, of Sanibel, and Daniel Joseph Sebastian, of Lakeland, were charged with various securities law violations and the SEC indicated it is seeking permanent injunctions, disgorgement of profits, and financial penalties against the two. Authorities also announced that Risher pled guilty to criminal charges stemming from the scheme in an indictment handed down in June.
From early 2007 until July 2010, Risher and Sebastian solicited funds from individuals for investment in a private equity fund known by several names, including Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund. According to the SEC Complaint, the two advertised their endeavor as “an investment vehicle that would allow investors to capitalize from both bull and bear markets.” Potential investors were provided with offering materials that contained numerous misrepresentations, including a successful history of annual returns for the fund ranging from 14% to more than 124% since 2000. During the time period in question, investors were sent account statements showing purported quarterly returns ranging from 2.28% to 5.64%. While investors were sold shares representing interests in the fund, no registration statement was filed or in effect with the SEC as required under federal securities law. The two also sent out regular newsletters and hosted several golf tournaments and promotion events for investors. At one golf tournament, Sebastian told investors that
“[Y]ou invest in this fund and all of a sudden you start making more money than you’ve ever made in your life with your investors. And then all of a sudden you start making enough money where you don’t have to go to work…[a]t Safe Harbor, you could retire today, like right now. And I’m telling you, you get rid of the struggle.”
Risher and his wife controlled several entities that were used to funnel funds to the operation, including Jade Asset Group, Capital Trading Partners, LLC, Managed Capital, LLC, and Isle FX Trading, LLC. Risher and Sebastian also solicited investments in a REIT Offering in January 2010 in which nearly $1 million was raised. The Safe Harbor Real Estate Investment Trust was purportedly established to fund the purchase and re-sale of distressed real estate. In total, Risher and Sebastian raised more than $22 million from over 100 investors. But according to the SEC, only $2.5 million of that $22 million was invested in securities, and brokerage records showed that nearly $1 million of that $2.5 million was lost in trading. The majority of the remaining $20 million was instead used to pay management and performance fees, interest payments and redemption requests to investors, and to fund Risher’s lavish lifestyle.
The Complaint also alleged that Risher had concealed his criminal background, including over ten years spent in prison for convictions based on violations of Georgia and federal securities laws. Additionally, contrary to his representations, Risher was never licensed to sell securities nor was he associated with any registered broker-dealer.
Along with the SEC charges, it was also disclosed that Risher entered guilty pleas to a June indictment charging him with money laundering and conspiracy to commit mail and wire fraud. Risher pled guilty to single counts of mail fraud, money laundering, and engaging in an illegal monetary transaction. Those charges carry a maximum combined sentence of fifty years in federal prison, although federal sentencing guidelines will likely yield a lower recommended range. Along with the to-be determined sentence, Risher also agreed to pay restitution to defrauded investors under the Mandatory Victim Restitution Act, and to the forfeiture of millions of dollars in cash and assets. A sentencing hearing has not yet been scheduled.
A Copy of the Criminal Complaint against Risher is here.
A Copy of Risher's Plea Agreement is here.
A Copy of the SEC Complaint is here.