The Securities and Exchange Commission on Friday charged six Washington, D.C.-area men with conducting a multi-million dollar Ponzi scheme that defrauded 130 investors of more than $27 million in the Washington metropolitan area between 2005-2010.
The SEC complaint, filed in federal court in Washington., alleges that the architect of the Ponzi scheme, Garfield M. Taylor, of Bethesda, Md., lured primarily middle-class residents in his community with little to no investing experience to invest in promissory notes issued by his two companies that engaged in what were described as low-risk options trading. Taylor urged investors to refinance their homes and use personal savings and retirement funds for the investments. The SEC alleges that he promised returns as high as 20 percent per year and assured investors that their investments would be protected by a "reserve account" or that he would employ a trading strategy that would not touch the principal amount of their investment.
But instead, the SEC claims, Taylor and his companies engaged in very high-risk, speculative options trading and suffered massive losses. Taylor relied upon money from new investors to pay returns to earlier investors in typical Ponzi scheme fashion.
The SEC's complaint alleges that Taylor siphoned off $5 million in investor funds to pay family and friends and for other personal uses, including $73,000 to the private school his children attended. The SEC also alleges that the Ponzi scheme defrauded more than $27 million from approximately 130 investors from 2005 to 2010. The scheme ultimately collapsed in the fall of 2010 when the companies' accounts were depleted by the trading losses and interest payments to investors.
The SEC is seeking a court judgment that permanently enjoins the defendants from future violations of the federal securities laws and ordering them to pay to-be-determined financial penalties.
The SEC's complaint charges Taylor's companies Garfield Taylor Inc. and Gibraltar Asset Management Group LLC -- which were not registered with the SEC -- as well as five collaborators in Taylor's scheme:
Maurice G. Taylor, Bowie, Md., brother of Garfield Taylor and chief investment officer at Gibraltar; Randolph M. Taylor, Washington, nephew of Garfield Taylor and former vice president for organizational development at Gibraltar; Benjamin C. Dalley, Washington, childhood friend and business partner of Randolph Taylor and former vice president of operations at Gibraltar; Jeffrey A. King, Upper Marlboro, Md., whose sister is married to Maurice Taylor, and a former independent contractor for Garfield Taylor Inc. and former president and COO of Gibraltar; and William B. Mitchell, Middle River, Md., former vice president for finance at Garfield Taylor Inc. and former executive vice president of strategic planning at Gibraltar.
The SEC claims that Garfield Taylor and the others jointly prepared and finalized a Gibraltar PowerPoint presentation for prospective investors filled with false and misleading statements. They misrepresented the nature of the company's options trading strategy, the anticipated rate of return, the protections offered by its outside accountant, and the overall level of risk involved in an investment with Gibraltar.
The group pitched their PowerPoint presentation to potential institutional investors and charitable organizations, including a Washington D.C.-based children's charity and a Baptist church in Maryland. Garfield Taylor went so far as to provide the Baptist church with a fake "letter of recommendation" from Charles Schwab as he pitched the investment opportunity.
The SEC claims that in order to maintain a steady flow of new investor money, Garfield Taylor induced current investors and others including King and Mitchell to solicit and refer new investors to him in exchange for commission payments based on the amounts invested. Garfield Taylor, who was not a licensed securities broker, persuaded several individuals to give him online access to their personal brokerage accounts so he could place trades and share in any profits generated.
Taylor urged investors to refinance their homes and use any available means to invest, including their personal savings and retirement funds. The SEC alleges that he promised returns as high as 20% per year and falsely assured investors that their investments would be protected by a "reserve account" or that he would employ a "covered call" trading strategy that would not touch the principal amount of their investment.