The co-owner of a Manhattan-based brokerage firm faces fraud charges after allegedly using $2.3 million of investor money to fund his “extravagant” lifestyle.

Robert DePalo allegedly sold British investors $6.5 million worth of shares of Pangaea Trading Partners, a holding company he controlled, in an attempt to keep his two brokerages afloat and support personal expenses including cars, jewelry and statues.

In a complaint filed on Wednesday in the U.S. District Court for the Southern District of New York, the SEC alleges that DePalo and his business partner Joshua Gladtke misrepresented the value of Pangaea’s assets to investors.

The SEC is seeking the payment of disgorgement fees and civil penalties and wants to permanently ban DePalo from serving as an officer of a publicly traded company.

In a parallel action, the Manhattan district attorney’s office announced criminal charges against DePalo and Gladtke, claiming they duped their 22 British investors into investing with high-pressure sales pitches.

DePalo and Gladtke are co-owners of Arjent LLC, an American private investment bank, and its British affiliate, Arjent Limited. DePalo served as chairman and CEO of the firms, while Gladtke served as managing director and acted as a liaison to the firms’ British clients.

Facing declining commission revenue, in 2010 Arjent LLC was writing checks that created a negative cash flow on its general ledger. DePalo attempted to raise money to cover the company's deficits by taking out personal loans, pawning assets and moving funds between personal accounts. Meanwhile, the British company, Arjent Limited, was also approaching insolvency. The SEC claims that it was against this backdrop that Gladtke and DePalo planned the Pangaea offering.

DePalo and Gladtke also allegedly misrepresented how investors’ money would be used, transferring the first $2.3 million raised directly to DePalo’s own bank accounts. DePalo then used some money to keep the Arjent entities solvent and used some for personal expenses. Besides using the money to pay his mortgage, DePalo used $285,000 to purchase three Bentleys, transferred $175,000 directly to his wife and bought a lawn jockey statue worth $22,000.

The SEC claims that DePalo also transferred some investor funds to Gladtke, and that the pair sought to cover up the fraud by making misrepresentations to investigators.

DePalo and Gladtke are charged with violating the antifraud and books-and-records provisions of federal securities laws. The SEC also charged Pangaea, the Arjent firms and another entity owned and controlled by DePalo called Excalibur Asset Management.

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