On June 29, a Florida court issued one final verdict against a Miami-based payday lender and its CEO investigating allegations that the defendants embezzled investor funds. According to that Complaint, the company fraudulently raised more than $66 million through the sale of promissory notes to more than 500 Venezuelan-American investors, who were told that the company was using its funds to fund payday loans by offering and selling “safe and secured.” “ would use promissory notes. Investors were promised returns of up to 120%, but it was claimed that the company was not generating any income to cover its principal and interest payments to investors.
The complaint also alleged that the CEO misappropriated investor funds for personal use and authorized the transfer of funds to friends and relatives with no apparent legitimate business purpose.
The Company and the CEO have entered into a final judgment barring them from future trading in securities and further violations of the Securities Act and the Exchange Act. The company also has to pay back investors $39 million. The CEO is liable for approximately $4.5 million which, if paid, will reduce the amount owed by the company accordingly.
On July 13, the SEC filed new, related indictments against four of the company’s sales representatives for their role in raising investor funds for the unprofitable business. The complaint, filed in the Southern District of Florida, alleges that the representatives sold more than $25 million worth of unregistered promissory notes to nearly 350 investors. None of the representatives were registered with the SEC as brokers or affiliated with registered brokers.
Put into practice: The misuse of investor funds in this particular case was particularly egregious. However, this series of enforcement actions should serve as a stark reminder that companies that sell promissory notes must comply with federal and state securities laws at every step and at every level of employment, from sales representative to CEO. The SEC, in particular, has signaled that it will vigorously enforce violations at both the corporate and individual levels.