Securities

SEC: Utah Man Operated $100 Million Ponzi Scheme

A Utah man who conducted real estate seminars across the country was the target of an emergency proceeding initiated by the Securities and Exchange Commission that charged him with operating a $100 million Ponzi scheme with hundreds of investors.  Wayne LaMar Palmer ("Palmer"), 57, of West Jordan, and his company, National Note of Utah ("National Note") were charged with multiple violations of federal securities laws in a civil complaint filed Monday.  The SEC indicated it is seeking disgorgement of ill-gotten gains, injunctive relief, prejudgment interest, and civil monetary penalties.  

According to the SEC's complaint, Palmer formed National Note in 1992, having been in the real estate financing business since 1976.  Palmer traveled across the country teaching real estate investment seminars, in which he offered investors two-to-five year investment opportunities that paid annual returns of 12%.  Potential investors were told that their funds would be used to buy and sell mortgage notes, underwrite and make loans, or buy and sell real estate.  Palmer promised that these investments would be "risk-free", and guaranteed the safety of investor's principal, and claimed that National note had a "perfect record" and had never failed to make a principal or interest payment.  

In September 2007, Palmer and National Note collected more than $50,000,000 from investors that was exempt from registration with state and federal regulators due to its offering under Rule 506 of Regulation D.  Investors were provided with a private placement memorandum ("PPM") that included unaudited financial statements.  Additionally, attendees of Palmer's real estate seminars were provided with a "glossy marketing brochure" touting the investments and their purported returns.  In total, since 2004, Palmer raised approximately $100 million from over 600 investors.  

Further digging in the SEC's complaint reveals the involvement of several large banking institutions in the scheme that will likely draw questions as to how the scheme went undetected.  Investors were initially instructed to deposit their funds into an account at JP Morgan Chase ("JPM").  National Note would then immediately wire virtually all funds into an account at Wells Fargo ("WF"), where investor interest payments were then processed and paid.  In light of various banking reforms including the Patriot Act, banks have faced pressure to implement effective programs designed to detect and curtail money-laundering and other fraud.  Additionally, the existence of a "Know Your Customer" rule requires banks to understand their customers and the nature of their banking activities.  While banks have remained relatively immune to claims for aiding and/or abetting fraud by victims of white collar crime, the recent jury verdict against TD Bank for its involvement in Scott Rothstein's $1.4 billion Ponzi scheme has emboldened those seeking to hold banks accountable.  

Scheduled interest payments to National Note investors ceased in October 2011.  

A copy of the SEC Complaint is here.

For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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