Securities Law Prof Blog

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

Wednesday, April 1, 2009

SEC Charges New York Adviser with Running Ponzi Scheme

The SEC charged Edward T. Stein with securities fraud and froze his assets to halt an ongoing alleged Ponzi scheme. The Court also froze the assets of seven entities, which Stein controlled, and the Commission charged as relief defendants, including investment funds Gemini Fund I, L.P. (Gemini) and DISP LLC (DISP), as well as, Prima Capital Management Corp. (Prima), Edward T. Stein Associates, Ltd., Vibrant Capital Corp. (Vibrant), Vibrant Capital Funding I LLC, and G&C Partnership Joint Venture.

In its action, filed in federal court in Manhattan, the Commission alleges that Stein is operating a Ponzi scheme and has moved more than $55 million in investor funds through the accounts of his investment funds, Gemini and DISP. The complaint alleges that Stein made material misrepresentations and omissions to induce individuals to invest in Gemini and DISP and then deceived investors by producing false statements reflecting healthy returns over the life of their investments. The Commission further alleges that in the past several months, Stein has turned to stealing client funds to keep his scheme going. Beginning in May 2008 and continuing into March 2009, Stein converted millions of dollars from a single client to pay off investors and pay personal expenses, including the purchase of a million dollar Manhattan condominium.

Judge Lynch of the U.S. District Court for the Southern District of New York granted the Commission's request for an order temporarily restraining Stein, freezing his assets and those of the relief defendants, and ordering accountings of Stein and the relief defendants. The SEC's complaint also seeks a final judgment permanently enjoining Stein from future violations of the federal securities laws, ordering him to pay financial penalties and to disgorge ill-gotten gains with prejudgment interest.

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