Frank Russo's Alleged Ponzi scheme
The SEC is reporting that "that it filed an emergency enforcement action today in federal district court in Massachusetts and obtained, by consent, preliminary injunctions, asset freezes and other relief against Frank J. Russo, a Massachusetts-based investment adviser and three affiliated entities in connection with a scheme to defraud investors through investments in limited partnerships. The Commission's complaint alleges that Russo, of Wakefield, Massachusetts, and his investment advisory corporation, FJR Corporation ("FJR"), raised at least $15 million from at least 160 investors in 12 states to invest in two limited partnerships controlled by Russo: Russo Associates Limited Partnership ("Russo Associates") and Eliot Partners ("Eliot Partners")." (my emphasis)
From the allegations, this would appear to be a gradual Ponzi scheme, a business model gone wrong. According to the complaint, Russo was offering investors a 10% return, and foregoing fees if the 10% return was not achieved. The offer to forgo fees works much the same way the offer of a guarantee does. Again, any forms of guarantees indicate that the investment is much riskier than being advertised. Just how much does it cost to fund the guarantee, how is funding it, and how will it be paid?
According to the complaint "Russo told some investors that their funds were being invested in bonds and other investment securities, and that the investments were safe and conservative. However, according to the complaint, Russo diverted at least $11.5 million in investor funds to a private California corporation which Russo co-founded with a college friend. The complaint further alleges that Russo is the California corporation's chief financial officer and that he is one of two directors. According to the complaint, the defendants did not disclose the purported investment in the California corporation to investors in the limited partnerships. To the contrary, the complaint alleges that the defendants sent false and misleading account statements to investors reporting fictional returns in excess of 10% and making false statements concerning the investment strategies of the limited partnerships. The complaint further alleges that, when the purported investment in the California corporation proved unprofitable and illiquid, Russo began paying dividends and investor redemptions with money raised from new investors." (my emphasis.)
The complaint contains other more spectacular claims, claims about returns as large as 66%. Hmm. Oddly, the complaint alleges that the funds were transferred to a California corporation, but does not include said corporation in the complaint. It is simply referred to as the "California Entity."
Technorati Tags: limited partnerships, russo, ponzi scheme, wakefield massachusetts, massachusetts based, limited partnership, associates limited, investors, fjr, investment adviser, investment advisory, injunctions, business model
Comments
I was an employee at Veritasiti Corp, which also hid under the names: Media Data Corp, Family Media Guide, Current Attractions and the Kinney Childhood Foundation (Which we were never allowed to get involved with).
David G. Kinney was the CEO of this company and he was completely aware of what Mr. Russo was up to. One month prior to Veritasiti going under the same day Russo was nabbed, David G. Kinney took out $800,000 against his Bel Air mansion, required that a small group of us dilligently write a business plan for the company (5 years into operation mind you...) and also mysteriously stopped direct deposit, because he stopped paying our payroll service and stopped paying our benifits - including health which was cut off months before the company went under.
Of course, none of this stopped him from taking money out of our checks for the very benefits he neglected to pay. He also left over 60 employees without pay for two pay periods.
All of us were left with nothing, large debts, bounced checks and some of us with upwards to $40,000 in medical bills that we THOUGHT was being covered by our insurance.
Now, I'm not sure what laws protect us as well, but I can certainly say that we were just as much victims as the poor investors these two guys scammed. I look forward to anyone's comments on this. Thanks.
Posted by: effedbyrusso | January 3, 2007 2:00 AM
I would get some legal advice about directors' liability for employee benefits.
For example, in Ontario, directors can be liable for the payment of employee benefits when a company becomes bankrupt.
You will also need some advice about possible fraudulant conveyances.
Posted by: michael webster
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January 9, 2007 8:39 PM
I worked for Veritasiti for 2 years and even thought it was a very hectic and stressful job, I kind of liked it. David Kinney was the CEO of the company and he made everyone work extremely hard but rewarded us with bonuses, snacks, lunches, breakfasts and even a birthday bonus each year. He was a bit intimidating but fair and promoted people who worked hard and went above and beyond. I started with a salary of $27,000 when I was in training but eventually I had the opportunity to be a manager and earned $33,000. That was the thing about that company. They demanded the best from you but they gave a great opportunity in return. I�ve only worked for a couple of companies since then but none had the orientation system and training that that company had. I think I got a good foundation for my working career. I just wish I was still working there.
We were all very upset when their funding was cut off due to some illegal investments by the CFO. In fact, I kinda feel ashamed of not saying anything when everyone started attacking the company and Mr. Kinney but I was pissed off after a bunch of us offered to stay in help Mr. Kinney get the company back into operation but then some guy from the East Coast convinced the government to include our company in the lawsuit and I guess that was the end of it. No one would touch us after that.
It was by far the most fun job I could imagine. I got paid to watch movies and play video games. I don�t know of any company that has developed what they had. Seems like they would have been perfectly positioned for being the way people pick movies and stuff. If there�s a chance of getting the company working again, count me in.
Posted by: Vera | February 2, 2008 1:21 AM
"Vera" is David G. Kinney. He left exactly the same comment on jobvent.com. (The Veritasiti entry there seems to have disappeared, presumably for legal reasons.) David, as you well know, the HR director told us all at that final meeting that you KNEW the company had secretly stopped paying our health care premiums, even though the deductions were still showing up on our (fake) pay stubs. When we confronted you about it, your "denial" consisted of first claiming that she was a liar (while apparently failing to notice that she was sitting six feet away), then telling us that you had more important things on your mind, and then attacking the person who was asking the questions. Why would any of us (or more specifically, one of the four or five guys whose salary history you are claiming as your own) volunteer to go back to work for you? I'm not even going to address how delusional the rest of it is.
Posted by: Actual Ex-Employee | April 22, 2008 3:23 AM