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Financial Fraud Law

Subprime Auto Loan Lender and Executives Charged with Fraud

 The Securities and Exchange Commission has charged Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers. 

The SEC alleged that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans, according to the SEC. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of nine to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent, the SEC alleged. But unbeknownst to investors, starting in 2004 approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit, according to the SEC.
 
Inofin is not registered with the SEC to offer securities to investors.
 
According to the SEC’s complaint filed in federal court in Boston:
 
Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing to 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
 
The SEC further alleged that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charged Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
 
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — alleged that they promoted the offering and sale of Inofin’s unregistered securities and were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.


 
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