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June 28, 2006

Frank Russo and the Amended Complaint

The original complaint against Frank Russo did not include the as a defendant the "California Company" which Russo and his companies allegedly transferred their investors money to. As I previously discussed, it was relatively easy to determine who this company was, Frank Russo had an interest in Veritasiti doing buisness as Media Data Corporation. On June 28, 2006, the SEC its amended complaint to include Veritasiti and obtained injunctive relief against the new corporate defendant.

The SEC's announcement is here and alleges "Russo diverted at least $11.5 million in investor funds to Veritasiti, which Russo formed with a college acquaintance. The amended complaint further alleges that Russo was Veritasiti's chief financial officer and that he was one of two directors. According to the amended complaint, Russo did not disclose the purported investment in Veritasiti to investors in the limited partnerships. To the contrary, the complaint alleges that he 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 amended complaint alleges that Veritasiti has no legitimate claim to the funds and that it was unjustly enriched by its receipt of those funds. The amended complaint seeks disgorgement of those amounts plus prejudgment interest." (my emphasis)

Technorati Tags: frank russo, chief financial officer, defendant, limited partnerships, investors, sec, Veritasiti, hedge funds, california company, injunctive relief

Posted by michael webster at 10:01 PM | | Comments (0) | TrackBacks (0)

June 10, 2006

Russo Partnership

The curious part of the SEC's allegations against Frank Russo is the failure to name the "California Company" which Mr. Russo alleged transferred assets to. According to the complaint, Mr. Russo and an friend of this opened this company in 1993. Well, it is fairly straight forward to do a google cache search and find that Mr. Russo was the CFO for a California company, Veritasiti, and that the CEO is Mr. David G. Kinney. Veritasiti also is the registrant of two websites, mediadata.com and familymediaguide.com. Both of these companies do have active websites. There is another interesting fact, or rather strange fact. Mr. Russo has been granted access to approximately 9,000 a month for living expenses and up to $75,000 in legal fees, according to the SEC order.

(At least one newspaper commentator has referred to the 10% return as too good to be true. I don't see this, the alleged representation was a 10% return with no fees, and anything over 10% split 50/50. There doesn't seem to be an allegation of a guaranteed return of 10%.)

But what would I be suspicious of?

Technorati Tags: google cache, frank russo, california company, sec, straight forward, curious part, kinney, registrant, cfo, allegations, ceo, split, strange


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Posted by michael webster at 11:14 AM | | Comments (3) | TrackBacks (1)

June 6, 2006

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

Posted by michael webster at 3:36 PM | | Comments (2) | TrackBacks (1)

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