SEC Charges NY-based Investment Adviser With Running $20 Million Ponzi Scheme

By:
Chris Gaetano
Published Date:
Oct 5, 2017
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The Securities and Exchange Commission said that a Westchester investment adviser convinced 42 friends and acquaintances to invest millions of dollars into a risky options-trading scheme, lost pretty much all of it, but continued to tell them everything was fine as he desperately sought new investors to pay back the old ones.

The man, Michael Scronic, is said to have collected about $20.8 million in investments by April 2010 from people he knew around his suburban development, saying that he had a proven track record of returns, and that the options he wanted to invest in were particularly liquid. He lost 88 percent of these deposits over the course of seven years, seeing gains in only 10 out of the 89 months he was running the scheme. However none of this was communicated in the quarterly financial statements he would sent out, with Scronic continuing to assert that everything was rosy. By June 2017 he was telling them that he had at least $21 million in total assets, but the truth was that it was just under $27,500.

When investors asked for their money, Scronic would generally offer an array of different excuses for why he could not release the funds at this time, or just outright ignored them. In other cases, though, he would solicit new investors to pay off the old ones, a move that pretty much defines a Ponzi scheme. For instance, during the period ending June 30, 2017, investors had deposited $650,000 and withdrew $700,000, indicating that the inputs were made mostly to pay off the outputs. 

The SEC also accused him of creating a fictitious hedge fund, SMF, for which he fabricated account statements to show investors that, see, he really was making them lots of money. He is also accused of moving money through multiple checking accounts and his brokerage account in order to hide the source and use of funds from his banks and brokerage firm. 

"Scronic's alleged scheme is just another example of a so-called investment professional acting as fiduciary, but failing to deal honestly with his investors for his own financial benefit," said Lara S. Mehraban, Associate Regional Director of the SEC's New York Regional Office. "Investors should be wary anytime they are promised high or consistently positive returns in a complex, hard to understand investment strategy."

In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Scronic.

The SEC's complaint charges Scronic with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC seeks a permanent injunction, disgorgement, and penalties against Scronic.

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