Gregory Applegate Sentenced for Role in Ponzi Scheme
The Securities and Exchange Commission ("Commission") announced that on October 17, 2006, Judge Polster of the United States District Court for the Northern District of Ohio entered a Final Judgment against Gregory Applegate ("Applegate") in which Applegate consented to the entry of an order of permanent injunction enjoining him from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Several months earlier, April 2006, the SEC announced, that Gregory Applegate had been sentenced to 5 years in prison and ordered to repay almost $3 million in restitution, in connection with his Ponzi scheme. According to the complaint,
"From about 2001 through August 2005, Applegate solicited at least 140 investors to invest at least $5.8 million in a supposed "hedge fund" and other investment vehicles. Applegate guaranteed an annual rate of return to these investors and promised to make up any losses out of his own pocket. The Complaint alleged that in reality, Applegate's "hedge fund" was a Ponzi scheme in which Applegate misappropriated investor funds, using them to finance an unrelated personal business, pay personal expenses, and reimburse or pay "investment returns" to earlier investors. To further this Ponzi scheme, Applegate mailed to investors false monthly client statements reflecting securities holdings and returns that did not exist."
How was Mr. Applegate able to "send false monthly client statements"?
Here is where the story turns more interesting than the SEC's dry recital of facts.
In a story Businessweek did last October, they state that the SEC claimed Applegate was:
"able to gain investors' trust, in part because he showed them business cards from Westerville, Ohio-based, Regis Securities, a brokerage where he had been working since January. Applegate told investors that he was running a hedge fund for Regis called Applegate Investments, and produced false monthly client statements for them, the SEC alleges". (my emphasis)
Business cards?! Jim Rockford had a fistful of business cards to establish his numerous false identities!
And what of the Regis Securities connection? Well according to the article,
"Regis Securities' president, Robert Cargin, said that Applegate's alleged scheme had been going on for years, beginning at another brokerage. "He had this program basically concealed when he joined our firm," Cargin said." (my emphasis)
So Regis Securities innocently facilitates a fraud by allowing their reputation to be used to gain trust, could this be a cause of action in tort? Should Regis have been more careful in checking what their broker was sending out? How did they supervise Mr. Applegate?
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