Six months after he filed for bankruptcy, a California investment adviser was arrested and is now facing civil and criminal charges accusing him of operating a $7 million Ponzi scheme that pitched investments in an organic beef ranch, housing projects, and a marijuana cultivation plan. Christopher Dougherty, 45, was arrested by California state authorities yesterday morning on charges of grand theft, elder abuse, and securities fraud and was also the subject of a complaint filed today by the Securities and Exchange Commission accusing him of violating federal securities laws. As of yesterday, Dougherty was being held on $5 million bond.
Dougherty has been in the financial services industry since 1998 as both a registered representative and an investment adviser, acting after 2012 solely as an investment adviser. Dougherty owned and operated several businesses, including C&D Professional Services, Inc. d/b/a C&N Wealth Management (“C&D”), JTA Farm Enterprises, LLC d/b/a JTA Cattle and Hay Broker Services (“JTA Farm”), and JTA Real Estate Holdings, LLC (“JTA Real Estate”). After forming relationships with many San Diego school district employees in the mid-2000s, Dougherty formed C&D and invited many of those contacts to join him at that firm. Dougherty ultimately had 30-40 advisory clients at C&D.
In addition to advising those clients on their third-party investments, he also invited them to invest through him in either (1) various “private placements,” (2) JTA Farm, or (3) JTA Real Estate. For example, clients were told that Dougherty’s “private placements” provided quarterly 5% dividends that were tax-free. For JTA Farm, Dougherty told clients that they were investing in his farm, with some investors being sold “hay contracts,” and that any profits would come from the farm’s operations. Finally, a few clients were told that their funds would be used by JTA Real Estate to renovate and sell a residential property in El Centro, California, and that they would derive profits from the eventual sale of the property. In total, Dougherty raised at least $7 million from his clients.
According to the Commission, Dougherty’s representations regarding the private placements, JTA Farm, and JTA Real Estate were false. Dougherty allegedly did not make a single investment using any funds raised from the “private placements,” his JTA Farm activities were minimal and did not make a profit, and the house touted to JTA Real Estate investors was never finished. Instead, the Commission claims that Dougherty mastermined a typical Ponzi scheme by using new investments to pay returns to existing investors. In addition to paying investors $2.4 million in fictitious interest and principal, Dougherty is also accused of misappropriating millions of dollars in investor funds to sustain a lavish lifestyle that included mortgage payments, cars, vacations, and credit card payments.
Dougherty’s scheme encountered difficulties in 2017 when he was not able to attract enough new investor money to sustain his existing investor obligations. After several investors filed suit against Dougherty in 20187 to recover their investments, Dougherty and his wife filed bankruptcy in October 2018. However, the U.S. Trustee’s review of Dougherty’s finances recently resulted in a March 2019 filing concluding that:
The Debtors’ practice of using new investment money to pay existing investors dividends and principal gave the false impression that the payments received by investors came from earnings and profits or from a return of the principal. This deception is the basis of a Ponzi scheme.
Fox’s San Diego affiliate reports that Dougherty faces up to 35 years in prison if convicted of the criminal charges.