Federal authorities accused two Atlanta-area men and a Myrtle Beach, S.C., man of defrauding investors of at least $775,000 after promising risk-free returns of as much as 35 percent a week.
Instead, at least four investors from metro Atlanta, Florida, Hong Kong and Mexico lost most of their money in the so-called “prime bank” scheme, according to investigators with the U.S. Securities and Exchange Commission and the Georgia Secretary of State’s Securities and Charities Division.
Such promises of high returns with no risk are often a red flag for fraudulent schemes, according to financial investigators.
In a civil complaint filed Tuesday in the U.S. District Court in Atlanta, the SEC asked for an injunction blocking the men from continuing the alleged scheme and requiring them to pay back investors and pay civil penalties.
The agency accused the men — Jeffrey D. Smith, 35, of Lithonia; Joseph Carswell, 47, of Marietta; Michael W. Fullard, 47, of Myrtle Beach — of operating the investment business like a personal piggy bank, promising big returns but quickly paying the cash out to themselves.
The accused men couldn’t immediately be reached for comment.
None of the men appears to have ever held investment adviser or broker licenses, the SEC said.
However, the agency said, Smith and Carswell set up investment businesses that were never incorporated, variously called Atlanta Capital, Atlantis Capital or Capital Funding. Fullard acted as a “finder” who convinced a Hong Kong investor to put $182,000 in the deal. The investor only recovered $10,000, according to the SEC.
The agency said that between 2013 and 2014, the men told the four investors that they could “lease” letters of credit or bank guarantees of as much as $10 million for fees ranging from $100,000 to $250,000.
In an investment scheme they described as “100 percent safe,” according to the SEC, the men would then “monetize” or sell the bank guarantees, invest the money, and pay millions of dollars to the investors.
But the men apparently never leased any bank guarantees or similar loans, according to the SEC, and none of the money apparently was ever invested on the clients’ behalf.
Instead, the men divvied up the “lease” fees among themselves, the agency said, and investors only recovered a small fraction of their money.
The Georgia Secretary of State’s securities division initially investigated the alleged scam after receiving a complaint in early 2015.
State securities investigator Jeremy Jones said he interviewed “numerous investors” and subpoenaed financial records. But “once the size and shape of the scheme became apparent, our office reached out to SEC officials,” he said, because the federal agency had more resources to investigate the case.
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