SEC Files Fraud Charges Against Aequitas Management Over Ponzi Scam

The Securities and Exchange Commission says that Aequitas Management LLC and four affiliates allegedly bilked over 1,500 investors. One of the affiliates, Aequitas Capital Management, has been in the headlines recently in the wake of news that the investment firm was letting go of almost all of its employees because of financial problems.

According to the regulator, the Oregon-based investment group and three of its executives tried to hide their financial woes while raising over $350M from investors. Meantime, investors were allegedly fooled into believing that they were putting their money in transportation, education, and health-care related investments when really their funds were going toward trying to save the firm. Earlier investors were purportedly paid with the money of newer investors, which is a trademark of a Ponzi scam.

The SEC’s complaint contends that CEO Robert Jesenik and EVP Brian Oliver knew about Aequitas financial problems but kept soliciting investors so they could continue bringing in money to cover the firm’s expenses, including redemptions and interest payments to earlier investors, and try to keep the business afloat. Ex-COO and CFO N. Scott Gillis is accused of hiding the fact that the firm was insolvent. He purportedly knew that Oliver and Jesenik were still soliciting investors.

Meantime, Aequitas’s top executives continued to make “lucrative” salaries as they brought more investors into a “losing venture.” They traveled in private jets and paid for golf outings and dinners for potential investors. They also persuaded prior investors to bring in more funds.

Quarterly updates to these investors allegedly included false statements claiming that their money was going toward purchase receivables. Investors were not notified that Aequitas Holdings and Aequitas Commercial Finance were insolvent or that most of the investor money was going toward paying investors and covering operating costs.

The SEC claims that from 1/14 to 1/16, Aequitas raised investor funds through promissory notes that were supposed to come with 8.5-10% return rates. While some of the funds were used to acquire trade receivable in the areas the investors thought they were getting involved in, most of the money went into for-profit education provider Corinthian Colleges’ student loan receivables. Aequitas financial problems increased in 2014 when Corinthian defaulted on its recourse obligations.

By last November, Aequitas was no longer able to fulfill scheduled redemptions. The SEC said that the firm owed investors $312M by the end of the year and could not pay them back. By early 2016, the balance on an intercompany loan parent company Aequitas Holdings that it kept on its books was over $180M and that’s when the investment group began to fold. Last month, a consulting firm was hired to help the business wind down.

The SEC is charging Aequitas Management, Aequitas Capital Management, Aequitas Commercial Finance LLC, Aequitas Holdings LLC, Aequitas Investment Management and the three executives with violating federal securities laws. It wants disgorgement with prejudgment interest, AND permanent injunctions, penalties, and bars for Gillis, Jesenik, and Oliver.

The SSEK Partners Group is an institutional investor fraud law firm. We represent institutional clients and high net worth individual investors.

Read the SEC Complaint (PDF)

Aequitas Lays Off More Employees in the Wake of Faulty Subprime Bets, Institutional Investor Securities Blog, February 12, 2016