SEC Charges New Yorker and Two Houston Firms with Fraud
The U.S. Securities and Exchange commission (SEC) has announced that it has filed suit against a New York businessman and two (2) Houston firms he controlled with fraud, according to SEC Litigation Release No. 22065. The lawsuit was filed on August 10, 2011 in the United States District Court for the Southern District of Texas, in Houston, Texas. The New Yorker named in the lawsuit is Damian Ornar Valdez and the two firms involved are Evolution Capital Advisors and Evolution Investment Group I. The defendants generated some $10 million from investors via a couple of fraudulent note offerings. Valdez’s Evolution Capital was registered with the SEC as an investment adviser until June 2010.
According to the SEC lawsuit, it is alleged that Valdez and his two firms made untrue statements about the note offerings, claiming that they were safe and secured by assets guaranteed by the United States government. Furthermore, they made promises that leverage would be used to buy the assets securing the notes, when in fact the assets securing the notes were loaded with default risk and prepayment risk. Apparently Ornar and his two firms paid themselves handsomely taking $2.4 million for fees and expenses and using $2.7 million from a second note offering to pay prior investors in a Ponzi scheme. Because of the defaults, prepayments, fees, expenses and Ponzi payments to prior investors, the SEC is predicting that there will not be enough money left to repay investors in the notes.
The SEC lawsuit is seeking disgorgement of the illegal gains, prejudgment interest, fines, penalties and injunctive relief against all defendants.