Federal officials have uncovered a $40 million Ponzi scheme in California that boasted glowing investment returns even as the financial markets were sinking.
The scheme lured about 150 customers, mostly from the Sacramento area, over a four-year period by advertising low-risk investments paying 42 percent a year, the U.S. Securities and Exchange Commission said.
The SEC filed a lawsuit accusing a Folsom, Calif., firm, Equity Investment Management and Trading Inc., and its two principals, Anthony Vassallo and Kenneth Kenitzer, of fraud. The firm stopped taking money from investors last November, the SEC said.
Nevertheless, U.S. District Judge Lawrence K. Karlton issued orders shutting down business operations of Vassallo and Equity Investment.
In a preliminary injunction agreed to by Vassallo, the judge said there is reason to believe he will continue to violate federal securities statutes. The order freezes all his assets and prohibits him from engaging in any transaction involving assets he owns or controls.
Karlton ordered Vassallo to submit within 21 days the location and disposition of funds received from investors, the location of all bank and brokerage accounts he controls, and the location and value of all his assets.
Jennifer Scafe, an attorney with the SEC, said the government had found a $1.2 million bank account under Vassallo's control in Redding, Calif.
"That's all we've found so far," she said.
Karlton ordered Vassallo not to destroy or dispose of his books and records. And in another order, Karlton forbid any control of Equity Investment's assets by the company or anyone associated with it.
Neither Vassallo, Kenitzer nor the company was registered with the SEC.
The U.S. attorney's office is conducting a criminal investigation, although no charges have been filed, said Lauren Horwood, a spokeswoman for the office. The FBI and Internal Revenue Service also are investigating.
Among the investors is Ethan Conrad, a successful Sacramento real estate investor, according to a statement Conrad filed in U.S. District Court in Sacramento.
According to his filing, Conrad invested $13 million on behalf of a fund he manages called BlackCard 1. He withdrew $2.1 million last summer, leaving nearly $11 million at risk.
In his court statement, Conrad said he persuaded another area businessman, Charles Urata, to invest with the firm. Urata and family members wound up investing about $10 million, according to Conrad.
Urata couldn't be reached for comment.
Vassallo, 29, Equity Investment's president, moved away from Folsom recently and his whereabouts are unknown, Scafe said.
Vassallo lured investors between 2004 and 2008 by saying he had a software program that could earn 3.5 percent a month investing in stock options with little risk. He told them he'd experienced only one unprofitable month, the SEC said.
Investors were also told that only 20 percent of their money would be at risk at any one time, to limit their losses "if anything did happen," Stillian said.
E-mail Dale Kasler at dkasler(at)sacbee.com.
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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