Regulators Continue Efforts to Rein in New Ponzi Schemes

Bernie Madoff’s $50 billion Ponzi scheme uncovered in 2008 apparently was just the tip of the iceberg. Other significant examples of investor fraud have surfaced since then including Carr Miller Capital LLC and Diversified Lending Group, Inc. scams that fleeced investors out of hundreds of millions of dollars. While federal and state regulators have filed complaints against both of these firms and their principals, it is doubtful that enough funds will be recovered by the regulators to help aggrieved investors recover much, if anything, as a result of these actions.

Carr Miller Capital LLC

The New Jersey Office of the Attorney General and the Bureau of Securities filed a lawsuit against Carr Miller Capital LLC and its three principals. The allegation is use of a Ponzi scheme and other means to defraud investors of over $40 million. The lawsuit filed in State Superior Court in Newark alleges that the defendants violated numerous state Uniform Securities Laws by committing fraud, commingling funds and selling unregistered securities.

According to the lawsuit, in or about 2007, Carr Miller Capital LLC and/or Capital Markets Advisory LLC through the defendants sold and continued to sell securities in the form of promissory notes. The document states that the Carr Miller notes had a term of nine months and promised returns of between 10 percent and 15 percent per year and return of the principal investment at the end of the nine-month period. Between 2007-2009 Carr Miller Capital LLC and related companies received $40 million in deposits. About $36 million of those deposits was from individuals and IRA’s. The investigation revealed that $16 million of the total was transferred into businesses purportedly operated by related companies including hedge funds, real estate, film production companies and an oil and gas venture.

According to the Attorney General Paula Dow’s press release, about $13.5 million of investors’ monies were used to pay for a New Jersey Devils sky box at the Prudential Center in Newark, personal automobile purchases, travel and luxury vacations and meals. “Instead of investing funds to produce high rates of return as promised, we allege that the defendants spent investors’ hard-earned money on personal luxuries and indulgences,” said Dow in the release. “These defendants operated a classic Ponzi scheme, using funds from new investors to pay money to earlier investors, all in an attempt to perpetuate the deception,” state Acting Consumer Affairs Director Thomas R. Calcagni said. “The promised rates of return sounded too good to be true and, sadly, that turned out to be the case.”

Diversified Lending Group

On March 4, 2009, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Los Angeles-based Diversified Lending Group (DLG), Applied Equities, Inc. (AEI), and their principal, Bruce Friedman. The SEC alleges that DLG, AEI, and Friedman are perpetrating an ongoing $216 million real estate investment fraud. The court entered an order halting the alleged fraud and freezing the assets of DLG, AEI, and Friedman.

The SEC’s complaint alleges that DLG, AEI, and Friedman raised at least $216 million from hundreds of investors nationwide, many of whom are senior citizens, by promising guaranteed high returns through real estate-related investments. Instead, the complaint alleges, Friedman diverted substantial investor money to ventures unrelated to real estate, and also misappropriated at least $17 million to support his lavish lifestyle, including purchases of a luxury home, cars, vacations, jewelry, and designer clothing for himself and an alleged girlfriend, who is named as a relief defendant.

The SEC’s complaint charges Friedman and his companies with selling securities in the form of one- or five-year “Secured Investment Notes,” representing that DLG pools investor money and invests it 70 to 80 percent in real estate property and 20 to 30 percent in mortgage lending. Once investors invested in the Notes, defendants continued to represent to them that their money was being used as represented, that DLG’s investments were profitable, that their money was safe, and that returns of either 9 percent or 12 percent were guaranteed. In fact, as alleged in the complaint, Friedman and his companies did not invest DLG investor proceeds as represented. Instead, they diverted a substantial amount of investor money to undisclosed business ventures unrelated to real property or mortgage lending, including Friedman’s charitable foundation and businesses operated by affiliates and Friedman’s family members and friends. Friedman and his companies only recently changed their written disclosure to mention these additional business ventures to DLG investors, even though DLG investors had financed them for years. Friedman also misappropriated substantial investor money for his own personal purposes.

The Law Firm of Blum Law Group represents investors who lost money purchasing investments issued by both of these companies and has filed arbitrations against the brokers who have sold these investments to their clients. If you purchased notes issued by Carr Miller or Diversified Lending Group from your broker, contact the Law Offices of Blum Law Group at (954) 255-8181 or toll-free at 877-STOCKLAW.

Blum Law Group specializes in representing investors nationwide in securities fraud cases. We have years of experience successfully recovering investment losses for our clients.