Nice Straightforward Ponzi - Borrow from Seniors and Don't Pay Them - Marion Sherrill
Last February, 2005 the SEC announced that it had obtained a temporary restraining order against Marion Sherrill alleging that "that, from approximately May 2003 through as recently as January 26, 2005, Marion D. Sherrill, a recidivist securities law violator, perpetrated a Ponzi scheme, selling over $400,000 of promissory notes to at least nineteen investors. While engaging in this Ponzi scheme, Sherrill was a registered representative of an Atlanta-based broker-dealer. The investors who purchased promissory notes were all brokerage customers of Sherrill and many were retired. Under the terms of these notes, Sherrill "borrowed" from his investors principal amounts ranging from $4,400 to $41,000, in exchange for a promise that he would pay monthly interest of 10% per annum and return to them the note's principal at the end of the note's term-a period of either twelve or twenty-four months. Sherrill told some of these investors that he would invest their money in his brokerage business in order to expand its operations. Sherrill told at least one customer that he would invest her money in a "tax-free mutual fund", from which she would get monthly tax-free income. Contrary to his representations, Sherrill did not use investor funds to expand his business operations or to purchase mutual funds. Instead, he deposited most, if not all, of the note proceeds in his personal bank account, commingled those proceeds with his own money, and paid his living expenses and various operating expenses of his business from the balance. Sherrill did not disclose to the investors that he paid their monthly interest by using money from new investors and that lacked the capacity to repay the principal without raising new investments." (my emphasis)
Yesterday, the SEC announced that Mr. Sherrill was ordered by the court "to pay disgorgement, prejudgment interest and a civil penalty in the amounts of $381,400, $17,183 and $25,000, respectively, provided that the amounts ordered as disgorgement and interest will be reduced by any amount ordered as restitution in Sherrill's related criminal case."
Note than none of the standard detection tricks, promulgated by regulators and others, is in play here. The return of 10% was not too good to be true, on its face. The con criminal made it look like a brokerage was actually offering the promissory notes. The only fly in the ontiment was Mr. Sherrill's previous run in with the SEC, which is summarized here. I wonder why the brokerage didn't know abou this?
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