The Securities and Exchange Commission has charged a Georgia investment advisor with deceiving investors into buying into two private unregistered funds he founded and controlled. The scheme ended up collapsing and caused investors to lose $2.6 million, the SEC said.
According to the SEC's complaint, filed in the U.S. District Court for the Northern District of Georgia, from October 2017 through December 2018, John Robert Jones Jr. of Carrollton, Ga., induced at least 24 investors from Georgia and Alabama to invest at least $5.1 million in PED Index Fund LP and PED Index Fund A1 LP by falsely promising growth and a quantifiable downside risk. The funds were Delaware limited partnerships formed in December 2016 and August 2017, respectively, the complaint noted.
The SEC said as early as October 2017, Jones told potential investors in the PED funds that, among other things, their funds were protected and could lose only 10% to 15% of their principal investment, that investors’ principal was insured, and that the funds' investment strategy was created in concert with a national financial organization known as the National Financial Research Laboratory. Those claims were all false, the complaint said.
Jones, the complaint said, owned several firms registered in Florida, including Astral Financial Group LLC (2007-2008), a broker-dealer, and financial advisory firms Crown Jewel Concepts LLC (2005-2015) and Regalia Financial Advisors (2015-2019). Regalia was the investment adviser for PED and another entity Jones founded, PED Capital Management LLC, was PED’s general partner, the complaint said.
He also formed Crown Jewel Capital Advisers LLC from 2015 to 2019. The entity was never registered with the SEC or any securities regulator but served as investment advisor for one of the funds, the complaint said.
The complaint said Jones managed the entities and was the sole investment decision-maker, conducting all the funds’ trading. He also maintained control over their brokerage and bank accounts. “The limited partners’ role was limited to investing money in the funds. They had no control over the funds’ activities and relied solely on Jones to generate profits,” the complaint said, noting that the sales of interests in the PED funds were not registered with the SEC.
In December 2018, the complaint said, Jones increased the funds’ exposure to S&P call options. That, combined with a downturn in the stock market, exposed investors to an average loss of 57%, or about $2.6 million of the $5.1 million he raised. Jones, as managing member of each of the PED funds’ investment advisor, received a 2% annual management fee, totaling $86,823 from September 2017 to December 2018, the complaint noted.
The complaint said investors received notification from the PED funds in January 2019 that the funds had closed in December, “purportedly due to stock market volatility, interest rate and dividend decreases, and oil price declines resulting in ‘a negative impact on the fund’s ability to successfully execute its long-term investment strategy.’”
The SEC's complaint charges Jones with violating the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. It seeks an injunction, disgorgement of allegedly ill-gotten gains with interest, and a civil penalty.