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Univ. of Toledo College of Law

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Monday, February 28, 2011

SEC CHARGES CEO OF PUBLIC COMPANY WITH OPERATING FRAUDULENT INVESTMENT SCHEMES

On February 24, 2011, the SEC charged Francis E. Wilde and Matrix Holdings LLC, an entity he controls, with orchestrating two fraudulent “high yield” or “prime bank” investment schemes that defrauded investors out of more than $11 million. Wilde is the CEO of Riptide Worldwide, Inc. (“Riptide”), a public company that is quoted on the OTC Market Group Inc.’s OTC Pink quotation service. The SEC alleges that Wilde started the fraudulent schemes when Riptide began experiencing financial difficulties. The SEC also charged Steven E. Woods, Mark A. Gelazela, and entities they control, for participating in the larger of the two schemes, and Bruce H. Haglund, a California-based attorney, for aiding in that scheme.

According to the SEC’s complaint, filed in the U.S. District Court for the Central District of California, the first scheme began in April 2008 when Wilde obtained a U.S. Treasury bond with a market value of nearly $5 million from an investor. He secured the investment by knowingly making false and misleading promises of outsized returns from what he claimed was a “private placement program.” Using a credit line obtained with the investor’s bond, Wilde promised to acquire a $100 million financial instrument and to pay the investor $12 million within 5 days as well as a prorated share of proceeds from the private placement program. Wilde also guaranteed the return of the bond if the $12 million payment was not made on time. Wilde (through Matrix) then used the bond to secure a line of credit that he drew down to pay personal expenses, to pay investors, creditors and debt holders of Riptide, and to make failed attempts to acquire fictitious prime bank instruments or to invest in high yield programs. Wilde’s bank closed the credit line after he attempted to deposit a fraudulent financial instrument into the account. After the bond serving as collateral for the credit line was sold, Wilde transferred about $2.1 million to another bank account and exhausted the rest of the investor’s funds. Wilde strung along the investor, continuing to misrepresent the status and whereabouts of the investment, the SEC alleges.

The SEC further claims that, beginning in October 2009, Wilde concocted another fraudulent scheme with Woods and Gelazela in the form of a “bank guarantee funding” program using the services of Haglund as escrow attorney. Between October 2009 and mid-March 2010, Woods and Gelazela signed contracts with 24 investors who sent over $6.3 million to Haglund’s trust account. Gelazela raised more than $5 million and Woods raised more than $1 million. The investment contracts stated that a “bank guarantee” with a denomination of at least $100 million would be leased “for the purpose of Private Placement Program enhancements” and fifteen percent of the credit line value would be paid weekly to the investor for a term of 40 weeks. Wilde, Gelazela and Woods later sought to pacify investors with additional misstatements as the scheme unraveled in 2010.

According to the SEC, Haglund knowingly and substantially aided and abetted the fraud perpetrated by Wilde, Woods and Gelazela. Haglund controlled the trust account into which investors were instructed to wire their funds. Haglund then wired those funds out of the account according to instructions from Wilde, thus allowing Wilde to utilize funds for undisclosed purposes. Wilde transferred millions of dollars to bank accounts controlled by Gelazela, Woods, Haglund, Wilde and Wilde’s wife. Haglund pocketed nearly $500,000 in “legal services” fees for making wire transfers, payments that were not disclosed to investors. Haglund also knowingly made, and Wilde knowingly authorized, Ponzi-like payments to old investors using new investor deposits.

The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, financial penalties, and accountings, against each defendant, as well as officer and director bars against Wilde and Haglund.

 

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