A federal grand jury in Los Angeles has indicted unregistered investment advisor Motty Mizrahi, 46, of Encino, Calif., for allegedly defrauded numerous Jewish and business investors, the Securities and Exchange Commission announced today.
Mizrahi ran a scheme out of his parents’ Encino home to defraud more than 40 investors, as well as Mizrahi's employer, a private high school, out of more than $3 million since June 2012, according to an indictment brought by the U.S. Attorney's Office for the Central District of California.
Mizrahi targeted prospective clients he knew from his Los Angeles-area synagogue or who were introduced to him through family and friends in the Israeli American community, the SEC said.
The SEC previously filed a civil complaint against Mizrahi and his sole proprietorship MBIG in March in an emergency action that obtained a temporary restraining order and subsequently a preliminary injunction against Mizrahi and MBIG for perpetrating a fraud on their investment advisory clients.
Mizrahi allegedly advertised himself to advisory clients as a professional money manager, licensed broker and certified public accountant. However, he has no broker registration, nor a CPA license, the SEC said.
The SEC says Mizrahi falsely claimed that his firm used sophisticated trading strategies to generate “guaranteed” returns of between 2% and 3% per month. He also described the investments as risk-free, and falsely promised that clients would not lose their money and could withdraw their funds at any time, the SEC said.
Unbeknownst to his clients, MBIG had no bank or brokerage account of its own—rather, clients unwittingly sent money to Mizrahi’s personal bank account, the SEC said.
Mizrahi used the money to fund his personal brokerage account, in which he engaged in high-risk options trading, producing losses of more than $2.2 million, the SEC said.
From that account, Mizrahi transferred at least $1.4 million to his personal bank account to make payments for personal expenses—notwithstanding that his compensation was to derive from a percentage of trading “profits,” of which he had none, according to the SEC.
The SEC's civil complaint charges Mizrahi and MBIG with fraudulently misleading advisory clients regarding his background, trading strategies, compensation that are charged in the indictment, and with lulling investors through fictitious brokerage records and false account statements designed to conceal his fraud.