SEC Says Group Told Investors They Had a Supercomputer to Read the Market, But It was Just a Ponzi Scheme

By:
Chris Gaetano
Published Date:
Jul 19, 2021

The Securities and Exchange Commission has accused a mother-son team of scamming investors out of $12 million by telling them they had access to a supercomputer that could read the market and give outsize returns when, in fact, they were running a Ponzi scheme.

The alleged scheme had been ongoing since at least 2018. The accused, Joy I. Kovar, and her son, Brent Kovar (who had previously been sanctioned for his role in a pump-and-dump scheme), are alleged to have told people that their company, Profit Direct, uses “proprietary A[rtificial] intelligence” and a “supercomputer” “to deliver higher than average returns, without the risk exposure to the current stock market. The pair allegedly said that, through buying CPU time on this supercomputer, they could generate returns of 20 to 30 percent on their initial investment.

But the SEC says that there was no supercomputer. The real source of the profits was much more mundane: other investors. The SEC believes that over 90 percent of the profits delivered from the firm came from later investors, a classic maneuver in Ponzi schemes. Meanwhile, instead of actually investing the money given to them, the Kovars are alleged to have transferred millions of dollars to Joy Kovar’s personal bank account, paid millions of dollars to promoters, and made Ponzi-like payments to other investors.

The complaint alleges that Profit Connect actively encourages investors to use money from retirement funds and home equity, and targets investors looking to build educational funds for their family.

“As we allege, the defendants targeted investors who were looking for safe products for their retirements and their children’s educations, offering a money back guarantee on top of the phenomenal results they promised to achieve using a purported ‘super computer,’” said Michele Wein Layne, director of the SEC’s Los Angeles regional office. “Investors should be wary of individuals and firms who guarantee double-digit returns with no risk of loss.”

 On July 14, the court granted the SEC emergency relief against the Kovars and Profit Connect, including a temporary restraining order and an order freezing their assets. A hearing is scheduled for July 26, to consider, among other things, whether to continue the asset freeze, issue a preliminary injunction, order an accounting, and appoint a receiver over Profit Connect.

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