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Univ. of Toledo College of Law

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Tuesday, June 22, 2010

SEC Charges Florida Investment Adviser with Running a Ponzi Scheme

The SEC today charged Trade-LLC, an investment adviser in Palm Beach Gardens, Florida, and two of its managing members with fraud for running a Ponzi scheme and stealing client funds.  According to the SEC, Trade-LLC, and its managing members, Philip W. Milton and William Center, convinced three private investment clubs, with more than 800 members nationwide, to entrust Trade-LLC with money so that it can trade securities on the clubs' behalf using its purported proprietary software trading program. Trade-LLC raised almost $28 million from the clubs and throughout the course of the scheme, claimed that it was profitably trading securities for them. In fact, Trade-LLC was incurring significant trading losses and Milton and Center were allegedly using the funds Trade-LLC received from the clubs to pay fictitious trading profits to them. Milton and Center also misappropriated the clubs' monies to pay their salaries and other personal and business expenses.

According to the SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, between 2007 and 2009, the three private investment clubs invested nearly $28 million of their members' funds with Trade-LLC based on promises that the firm can generate significant returns for them and their members. On a monthly basis, the clubs received reports from Trade-LLC purportedly showing that they were making returns of up to 8% a month, or approximately 100% on an annualized basis. In truth, Trade-LCC was consistently losing money from the trading it conducted on behalf of the clubs, which was directed by Milton, and in total sustained trading losses of more than $2 million.

The complaint further alleges that Trade-LLC, Milton, and Center were operating a Ponzi scheme by using the funds Trade-LLC received from the clubs to pay back to them more than $1 million in fictitious profits. Moreover, the SEC's complaint alleges that Milton and Center misappropriated millions of dollars belonging to the clubs. Specifically, Milton and Center used the clubs' funds to pay themselves salaries of more than $2 million and $1 million, respectively, and to cover more than $1.3 million in business and other unrelated expenses. Milton and Center also transferred, without any legitimate basis, over $4.8 million of the clubs' funds to three Florida companies they controlled.

Trade-LLC, the relief defendants and Milton have agreed to settle the charges against them. Trade-LLC and the relief defendants have consented to asset freezes and being placed in receivership, and to disgorge all of the funds that the court determines they received from the fraudulent scheme.

http://lawprofessors.typepad.com/securities/2010/06/sec-charges-florida-investment-adviser-with-running-a-ponzi-scheme.html

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