Yesterday, the U.S. Securities and Exchange Commission filed charges and obtained an order to freeze assets in the sixth alleged Ponzi scheme it has uncovered since Bernie Madoff revealed his operation of a $50 billion Ponzi scheme in December 2008. 

In a lawsuit filed in U.S. District Court for the Southern District of New York, the SEC alleges that Edward T. Stein, a New York-based investment adviser, conducted a $55 million Ponzi scheme. He allegedly solicited funds from longtime friends and acquaintances; invested them in the accounts of two entities that he ran; sold interests in those entities to more than 80 investors; and then produced false statements for investors reflecting healthy returns over the life of those investments while using the money to pay off prior investors, pay personal expenses, and fund a failed magazine venture.  In a separate criminal complaint, federal prosecutors charged Mr. Stein with wire fraud and alleged that he defrauded a client out of more than $6.5 million.

Yesterday's charges further evidence the SEC's commitment to uncovering and halting Ponzi schemes. According to Robert Khuzami, Director of the SEC's Division of Enforcement, "[h]alting Ponzi schemes and freezing assets of the perpetrators continues to be an important enforcement priority for the SEC."  Mr. Khuzami further added that "[t]he SEC has halted more than 75 Ponzi-related schemes in the past two years and charged more than 300 individuals since 2002 in such enforcement actions."

Given the SEC's focus on halting Ponzi schemes, we can expect enforcement in this area to continue.

For more information, please contact Justin P. Klein at 215.864.8606 or kleinj@ballardspahr.com, or John C. Grugan at 215.864.8226 or gruganj@ballardspahr.com.


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