“When Persaud blatantly lied to investors and hid their losses through a Ponzi scheme, he should have known that an SEC enforcement action was in the stars.” -Eric I. Bustillo, Director of SEC's Miami Regional Office.
The Securities and Exchange Commission ("SEC") charged a Florida man with operating a Ponzi scheme that failed to disclose to investors that the principal trading strategy would be based on the distance of the moon to the sun. Gurudeo "Buddy" Persaud was charged in a Florida federal court with multiple violations of federal securities laws. The SEC indicated it is seeking the standard disgorgement of ill-gotten gains, injunctive relief, and civil monetary penalties.
Persaud was employed as a registered representative of broker-dealer Money Concepts Capital Corp. beginning in February 2003, according to his FINRA Broker Check. Beginning in late 2007, Persaud established the White Elephant Trading Company LLC ("White Elephant"), which he registered with the Florida Department of State under the name of his two brothers to avoid scrutiny from his employer, which under industry regulations is required to be aware of any outside business activities engaged in by registered representatives. In soliciting investors, which sometimes took place at the brokerage firm where he worked, Persaud touted annual risk-free returns ranging from 6% to 18%, which would be generated by investments in the futures market and other markets. Potential investors were assured that Persaud that their funds would be safe, and Persaud explained that he had extensive experience in the financial services industry as a certified financial planner. In total, Persaud and White Elephant raised approximately $1 million from fourteen investors.
According to the SEC, Persaud failed to disclose to investors that "his trading strategies were based on lunar cycles and the gravitational pull between Earth and the moon." Additionally, Persaud misappropriated over $400,000 from investor funds, using that money to support his and his family's lavish lifestyle. Of the money that Persaud did invest, he sustained continued trading losses beginning in the first month he began trading that totaled $400,000. To convince investors that their funds were safe and generating healthy returns, Persaud used investor funds to make interest payments to existing investors - a hallmark of a Ponzi scheme.
Often, investors are lulled into a false sense of security when dealing with a registered representatives of a well-known brokerage firm. However, the solicited investments are nearly always sold without the knowledge of the representative's employer nor are they disclosed on the registered representative's outside business activities. This false sense of security can often be disastrous, for if the investment turns out to be a fraud (like here), not only does the registered representative face legal consequences, but the employer may as well.
A copy of the SEC complaint is here.