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Univ. of Toledo College of Law

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Wednesday, February 27, 2008

SEC Charges Three with Scam Targeting Military Families

The SEC charged three promoters who targeted military families in a multi-million dollar investment scheme that forced victims into personal bankruptcy and their homes into foreclosure. The scam also targeted other affinity groups, including the Southern California Filipino community and fellow church members.  The SEC's complaint names James B. Duncan and two others — Hendrix M. Montecastro and Maurice E. McLeod — who solicited investors in Southern California, Arizona, and elsewhere using sham investment seminars and "referral partners" including a member of the Air Force who solicited his fellow servicemen. The complaint alleges they gained control over investors' finances by offering them securities in the form of real estate investment contracts, and purporting that the money investors earned would help make mortgage payments on investment homes purchased on their behalf. Instead of investing client funds as promised, they operated a Ponzi-like scheme by using money from new investors to make mortgage payments on previously purchased investment homes. When the scheme unraveled, it cost more than 75 investors an estimated $10 million.

The SEC's complaint, filed in U.S. District Court in Riverside, Calif., alleges that between October 2004 and June 2006, the three defendants operated through Murrieta, Calif.-based Pacific Wealth Management, LLC (PWM) and Stonewood Consulting, Inc., to defraud investors from several affinity groups. The complaint alleges that Duncan, Montecastro, and McLeod falsely promised investors that their funds would be invested in real estate and various other investments that would subsidize their investment homes. The SEC's complaint further alleges that Duncan, a recidivist, raised $1.2 million in a separate offering of preferred membership units in Total Return Fund, LLC, to approximately 20 investors. The complaint alleges that the proceeds raised in both offerings were commingled and used to run a Ponzi-like scheme that fell apart and left investors with homes in foreclosure and forced some investors to declare bankruptcy.

The SEC's complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The complaint also names Christopher J. Oetting, Anthony M. Contreras and Biocybernaut Institute, Inc., as relief defendants, alleging that they received ill-gotten gains from the defendants' fraudulent conduct.

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Comments

It is schemes like his that make problems for legitimate companies looking for investment capital.

Posted by: Jake Kennedy | May 7, 2008 9:01:00 AM

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