The SEC announced it had brought civil enforcement actions against three additional individuals for their role in a $16 million Ponzi scheme whose victims were primarily members of the Church of Jesus Christ of Latter-Day Saints. Kevin J. Wilcox, Jennifer E. Thoennes, and Eric R. Nelson were each charged with multiple violations of federal securities laws. In its complaint, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties. The mastermind of the scheme, Eric Nelson's brother Joseph Nelson, was previously charged by the SEC in June 2010, along with Wilcox and Nelson as relief defendants.
According to the SEC's complaint, Wilcox, Thoennes and Nelson played varying roles in three distinct Ponzi schemes operated by Joseph Nelson and Anthony C. Zufelt since 2005. The first, operated by Zufelt, collected nearly $3 million from at least 36 investors who thought they were investing in "Income Stream Accounts" offered by Zufelt, Inc ("ZI"). Next, at least 11 individuals invested at least $770,000 in investments offered through Silver Leaf Investments, Inc. ("SLI"). Both ZI and SLI are owned and operated by Zufelt. Along with Nelson and others, Zufelt solicited investments in ZI and SLI by claiming annual returns of up to 220% achieved through profits in a credit card processing business operated by Zufelt. Investors were also falsely promised that the businesses were registered with the SEC. Of the nearly $4 million collected through SI and ZLI, approximately $1 million was paid to investors in the form of purported returns to maintain a facade of legitimacy.
The third scheme, operated by Nelson, started in June 2005 and consisted of the offering of promissory notes through various companies operated by Nelson (the "Nelson Companies"). Many of the investors were fellow members of the Church of Jesus Christ of Latter Day Saints that Nelson targeted through church functions. Investors were promised exceedingly high short-term returns of up to 200% generated from Nelson's management of merchant portfolios that are then resolt to financial institutions. In total, over $12 million was raised from approximately 100 investors. Of this $12 million, the SEC alleged that Nelson repaid over half in the form of fictitious interest payments to investors.
Instead of investing the approximately $16 million raised through the three Ponzi schemes, the SEC alleges that Zufelt and Nelson used funds to pay for a variety of personal and luxury expenses, including the funding of Zufelt's Fantasy Fight Club ("FFC"), which included $10,000 to paint the FFC logo on his Dodge Viper.
The SEC's Complaint alleges that Eric Nelson received at least $200,000 in transfers consisting of investor funds, while Wilcox received approximately $46,000 in improper transfers.
The new charges come several weeks after the SEC charged a father-and-son duo with operating a $220 million Ponzi scheme that also preyed on connections with the LDS Church. More coverage of that scheme is here.
A copy of the SEC Complaint is here.