Boynton Beach Florida Broker Malcolm Segal Sued By SEC for Conducting Ponzi Scheme
From 2009 through 2011, Segal purchased CD’s from banks insured by the Federal Deposit Insurance Corporation (FDIC) on behalf of investors as he promised. However, the SEC alleged that Segal, without his customers’ permission, redeemed many of those CDs before they matured and frequently used those proceeds to make payments to early investors and for his personal use.
In 2009, Segal bought at least 134 CDs with interest rated between 1.14% and 2.75% totaling $11,690,000 for clients of a registered investment advisor (Advisor A). Segal did not purchase the CDs in the name of the individual investors, but instead purchased the CDs in the name of “Clients of [Advisor A].” This naming method of not titling the CDs in the investors name granted Segal control over the funds invested in the CD and denied investors protections usually associated with FDIC-insured CDs. The SEC alleged that Segal redeemed at least 76 of those CDs for a total of at least $5 million before they reached their maturation date.
The SEC alleged that Segal used those proceeds with other investor funds in the J&M Financial account to repay early investors rather than returning the money to the purchasers of the CDs. In 2011, after Segal allegedly raised $8.1 million in the sale of non-existent CDs, the SEC alleged Segal stopped buying CDs altogether and relied on entirely fictitious investment to perpetuate the fraud.
Segal convinced some investors to wire funds to one of his entities for the purpose of buying CDs. However, instead of purchasing the CDs as promised, Segal allegedly diverted the investor funds to a bank account he controlled and continued to use the funds to pay off earlier investors and live a luxurious life. Segal falsely represented to investors that he would use the funds to purchase CDs directly and hold them in his vault for “safe keeping” and told investors that Advisor A was sponsored and oversaw the CD program and was responsible for custody of the CDs.
In addition, the SEC alleged that by December 2013, Segal began misappropriating funds directly from his brokerage customers’ accounts to keep the scheme from collapsing. In December 2013, an investor told Segal he intended to redeem three maturing CDs (which did not exist) for a total of $720,000. Segal allegedly transferred $225,000 from another clients account and fraudulently placed them in the J&M Financial account by forging signatures with the intention of repaying the client that requested to redeem his CDs. The scheme collapsed when the client noticed $225,000 missing from his account in March 2014.
For Malcolm Segal’s alleged violations, the SEC seeks disgorgement plus prejudgment interest and penalties as well as permanent injunction.
Attorney Pearce was trained at the SEC more than 40 years ago. Since then he has accumulated a detailed understanding of how the SEC Enforcement Staff approaches investigations and which strategies are most likely to be effective in responding to an informal inquiry from the Staff or formal investigation. If Mr. Pearce is unsuccessful in resolving an investigation satisfactorily, he is prepared and has successfully litigated against the government.
In fact, Mr. Pearce is one of a handful of attorneys nationwide who has won defense verdicts and obtained a Final Judgment against the SEC under the Equal Access to Justice Act ("EAJA") for hundreds of thousands of dollars for attorneys fees, expert witness fees and other costs incurred by a client who was wrongfully prosecuted in a market manipulation case.
For dedicated representation from a firm with substantial experience in all aspects of SEC investigations and enforcement proceedings, contact our law firm by phone at 561-338-0037, toll free at 800-732-2889 or via e-mail.