Securities Law Prof Blog

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

Thursday, October 6, 2011

SEC Files Emergency Action to Halt Green-Product Themed Ponzi Scheme

The SEC announced that it obtained an emergency court order to halt a Ponzi scheme that promised investors rich returns on water-filtering natural stone pavers, but bilked them of approximately $26 million over a four-year period.  The SEC’s complaint alleges that convicted felon Eric Aronson and others defrauded investors in PermaPave Companies, a group of firms based on Long Island, N.Y., and controlled by Aronson.

About 140 individuals, many working in the construction or landscaping business, invested in the scheme between 2006 and 2010, the SEC alleged. Investors were told that PermaPave Companies had a tremendous backlog of orders for pavers imported from Australia, which could be sold in the U.S. at a substantial mark-up, yielding monthly returns to investors of 7.8% to 33%. In reality, the complaint states that there was little demand for the product, and the cost of the pavers far exceeded the revenue from sales. 

According to the SEC’s complaint, when investors began demanding money owed to them, Aronson accused them of committing a felony by lending the PermaPave Companies money at the interest rates he promised them, which he suddenly claimed were usurious. Aronson and his attorney, Fredric Aaron, then allegedly made false statements to persuade investors to convert their securities into ones that deferred payments owed them for several years.

The U.S. Attorney’s Office for the Eastern District of New York, which conducted a parallel investigation of the matter, today filed criminal charges against Aronson, Buonauro, and Kondratick, who were arrested earlier today.

U.S. District Court Judge Jed S. Rakoff granted the SEC’s request to freeze assets of the defendants and eight relief defendants. The SEC is seeking preliminary and permanent injunctions against the defendants, and to have them return their allegedly illicit profits with prejudgment interest, and pay civil monetary penalties. In addition, the SEC seeks to bar Aronson, Kondratick, and Aaron from participating in penny-stock offerings and from serving as officers or directors of public companies.

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