Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, May 19, 2008

SEC Obtains Asset Freeze Against Plus Money, Inc.

The federal district court for the Southern District of California entered an order preliminarily enjoining defendants Plus Money, Inc. and Matthew La Madrid from violating the antifraud provisions of the federal securities laws and freezing the assets of both the defendants and the relief defendants (the Premium Return Fund Limited-Liability Limited Partnerships I through III (the "Premium Return Funds"), the Return Fund LLCs I through VI (the "Return Funds"), Palladium Holding Company, and Donald Lopez).  The court order also appointed Stephen J. Donell as permanent receiver over Plus Money, the Premium Return Funds and the Return Funds.

On April 28, 2008, the Commission filed an emergency civil injunctive action and a complaint alleging that since May 2004, Plus Money, an entity controlled by La Madrid, has acted as investment adviser to the Premium Return Funds, and that from May 2004 through July 2007, the Premium Return Funds had raised approximately $30.6 million from at least 300 investors. The complaint further alleges that La Madrid told prospective investors that he would use their money to pursue an investment strategy solely focused on the buying and selling of covered calls. However, the defendants failed to disclose to their clients that in the fall of 2007, Plus Money transferred $10 million from the Premium Return Funds to relief defendant Palladium Holding Company, an entity controlled by relief defendant Lopez, or that Palladium used about half that amount to engage in short-sale transactions involving Treasury Bonds and transferred most of the remainder to various individuals and entities, many of which are associated with or controlled by Lopez. In its complaint, the Commission seeks the return of ill-gotten gains with prejudgment interest, and penalties against the defendants.

On April 30, the court issued a temporary restraining order halting the defendants' conduct and temporarily freezing the assets of the defendants and the relief defendants. The May 16 preliminary injunction order continues the asset freeze indefinitely and prohibits the defendants from violating Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder

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