Frozen Ponzi Assets

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Frozen Ponzi Assets

Brrrrr! SEC shuts down $85 million Ponzi scheme and freezes assets

Earlier last week, the Securities and Exchange Commission (SEC) unsealed fraud charges against a Mississippi company and its principal for allegedly bilking at least 150 investors in an $85 million Ponzi scheme.

Why do Ponzi schemes work?

Because they sound so good. Beginning in 2004, the alleged Ponzi schemer, Arthur Lamar Adams, raised approximately $85 million dollars from more than 150 investors in multiple states, through his wholly-owned company, Madison Timber Properties (MT Properties). Adams told investors their money would be used by his company to acquire timber-harvesting rights from various landowners located in Alabama, Florida, and Mississippi. In return, Adams promised annual returns of 12-15%.

But, in true Ponzi form, Madison Timber never obtained harvesting rights to anything.  Instead, Adams allegedly forged deeds and cutting agreements as well as documents purportedly reflecting the value of the timber on the land. And then he used invested funds secured from new investors to pay earlier investors and convinced original investors to roll over their “profits” back into the fund. The rest he used to fuel a variety of personal real estate investments and to cover personal expenses.

If it sounds too good to be true…

It is, says Richard Best, Director of the SEC’s Atlanta Regional Office. “Investors should be wary anytime they are promised high or consistently positive returns.”

Adams raised the $85 million through the sale of promissory note investments which continued from at least 2004 through April 19, 2018. The promissory notes were designed to hold for a one-year period and offer the annual return of 12%-15%, which would be repaid over the course of the year. At the end of that year, investors would be able to have their principal returned or rolled over into a new investment. Adams told investors the investment returns would be generated from the sale of the harvested timber, and that they (the investor) had sole rights to specific land tracks and that no one else would be able to harvest that timber on that land. Which in hindsight is a good thing as no one in the “timber scheme” actually owned anything.

First the SEC, then…the Feds

In a parallel action, the U.S. Attorney’s Office for the Southern District of Mississippi today announced criminal charges against Adams.

The SEC’s complaint, filed under seal in federal court in Jackson, Mississippi on April 20, 2018 and unsealed last week, charges Adams and Madison Timber Properties with violating the antifraud provisions of the federal securities laws.  The court granted the SEC’s request for an asset freeze and permanently enjoined Madison Timber and Adams from violating the antifraud provisions of the federal securities laws and ordered Adams to surrender his passport.  Adams, his officers, agents, servants, attorneys, and any bank or financial institution holding his assets are also restrained from destroying, transferring, or otherwise rendering illegible all books, records, papers, ledgers, accounts, statements, or other documents related to the scheme.

Adams and Madison Timber consented to the entry of the court order.

Can compliant recordkeeping help you keep your passport?

Maybe, so long as you’re also committed to staying on “straight and narrow!” That’s where Patrina can help. For more than 25 years, we’ve built a business on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered!