A Moreno Valley, Calif., registered investment advisor has been arrested for allegedly defrauding senior citizens, some of whom he knew through church connections, in a long-running Ponzi scheme, the U.S. Attorney for the Central District of California and the SEC announced today.

Paul Horton Smith Sr. has been charged criminally and civilly for taking money from 75 investors and, instead of investing the money as he said he would, using most of the funds to pay off earlier investors and, in some cases, to pay their tax bills, the two agencies said. He also allegedly used some of the money to settle investor fraud lawsuits, according to the SEC.

The U.S. Attorney's Office said a total of $10 million was collected from investors in the fraud.

The SEC filed an emergency action and obtained a temporary restraining order and asset freeze against Smith and his companies to halt the ongoing scheme. Smith sold securities in his company Northstar Communications and used his investment advisory firm, eGate LLC, and his insurance and estate planning company, Planning Services, to market the securities, the SEC complaint said.

The complaint described the fraud as a classic Ponzi scheme.

"From January 2018 through April 2020, Smith sold more than $5.6 million of fictitious Northstar securities to at least 35 investors, and paid out over $5.3 million to Northstar investors as interest payments or principal return," the SEC complaint stated. 

Smith is also accused of misusing $256,000 of investor funds by comingling the funds with  bank accounts of Northstar, eGate and Planning Services that Smith controls, the complaint said

"Defendants further misused at least $175,000 of Northstar investor funds by settling investor lawsuits brought against the defendants by defrauded investor," the complaint said.

Smith and Northstar held free workshops and other investor events and allegedly promised investors guaranteed annual interest payments between 3% and 10.5% for investing in so-called “private annuity contracts,” which were supposed to be a safe alternative to the stock market, the complaints said. He held himself out to be a “chartered senior financial planner” on his website, the agencies said.

Among his victims was a 70-year-old women whom he knew through church affiliations. She sold her home in Arizona and gave Smith $175,000 to invest, the U.S. attorney said. Another was an 86-year-old woman who had known Smith for many years who invested nearly $170,000 with Smith after selling rental property. The U.S. attorney said the day after he received the money, Smith took almost $135,000 of it to pay off another investor.

In the criminal complaint, Smith is charged with one count of wire fraud for the scheme, which started at least as early as 2013, the U.S. attorney said.

The U.S. District Court for the Central District of California asked for a financial accounting and appointed a temporary receiver. The SEC’s complaint seeks injunctions, the return of ill-gotten gains plus interest, and civil penalties.

Correction: A prior version of this story incorrectly identified the defendant in the case.