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

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Monday, March 29, 2010

SEC Charges Unregistered Adviser in Ohio with Misappropriating Clients' Funds

The SEC today filed fraud charges against an unregistered investment adviser for misrepresenting the safety and nature of his investment strategy, and for misappropriating millions of dollars in funds from investors in California, Illinois, Ohio, Tennessee, and Washington.  According to the SEC's complaint, Enrique F. Villalba, Jr., of Cuyahoga Falls, Ohio, misappropriated approximately $6 million of client funds. The complaint alleges that Villalba touted an investment strategy he developed that he falsely claimed was conservative, relatively risk free and would preserve his clients' principal capital while still earning them returns of 8% to 12% annually. To substantiate the safety of his investment strategy, the complaint alleges that Villalba falsely claimed that he placed stop orders approximately 2% above or below the entry price of the investments. The complaint also alleges that Villalba further enticed prospective clients by assuring them their money would only be used for investments in securities, including S&P 500 Index contracts, treasury bills or interest earning money market accounts, and that his management fees would be limited to between 12% and 15% of the profits he generated on their behalf.

According to the SEC's complaint, from 1996 through June 2009, Villalba attracted over $39 million in client funds, and from 1998 through 2009, Villalba lost, through trading, over $17 million of his clients' money. The SEC's complaint also alleges that Villalba misappropriated client funds by (i) paying over $4.1 million for Villalba's management fees, salary and his company's overhead, (ii) purchasing over $700,000 in real property, (iii) investing over $1.2 million in two start-up coffee businesses Villalba owned, and (iv) making Ponzi-like payments. The complaint further alleges that Villalba, to hide his investment failures and his misappropriation of client funds, prepared and provided his clients with false quarterly accounts statements, which always showed that his clients' accounts had overall increased in value. The complaint also alleges that Villalba provided one investor with falsified brokerage statements using the letterhead of a brokerage firm.

http://lawprofessors.typepad.com/securities/2010/03/sec-charges-unregistered-adviser-in-ohio-with-misappropriating-clients-funds.html

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