A former investment sales agent has agreed to pay disgorgement of $105,000 and other penalties to settle charges that he sold $22 million in fraudulent securities to government entities in Puerto Rico, the SEC announced.
Eliseo Acosta, a resident of San Juan, Puerto Rico, agreed to the penalties after the SEC sued him, alleging he was part of an investment scheme that began around 2013 in Florida at Kinetic Investment Group LLC, an unregistered investment advisor. Kinetic Investment Group, along with its managing member, Michael Scott Williams, sold securities of Kinetic Funds I, which it misrepresented as being mainly invested in income-producing U.S.-listed financial products and as having at least 90% of its portfolio hedged using listed options, according to the SEC.
In truth, the SEC said, Williams used Kinetic Funds I assets to fund his own start-up company and misappropriated at least $6.3 million through undisclosed loans to himself and his entities to pay for personal expenses. Between 2013 and 2015, Kinetic Group and Williams heavily marketed their fund by developing marketing brochures, websites and even addition a description of Kinetic Funds I to Bloomberg’s asset management computer system, all done to make the fund seem transparent and credible, according to the SEC. In addition, the company used unregistered sales agents, including Acosta, to solicit additional investors.
Kinetic Group and Williams were accused by the SEC of raising $39 million in assets for Kinetic Funds I from among 30 investors located primarily in Florida and Puerto Rico. In that case, which was filed in spring of 2020, the SEC sought and obtained an asset freeze and records preservation. The company eventually went to receivership and, as of this month, the receiver filed a motion for the court to approve a $13.2 million interim distribution of liquified assets to investor claimants with approved claims.
The Acosta filing alleges that, beginning in 2015, when he joined Kinetic Group, and through July 2018, he solicited at least 16 government entities in Puerto Rico to invest in Kinetic Funds I. Two of the entities went forward with a combined investment of $22 million, making them the two largest investors in the fund and for which Acosta received $105,300 in commissions. At the time he solicited the investments, Acosta was neither registered as a broker-dealer nor associated with a registered broker-dealer, the SEC said.
According to the filing, Kinetic Group gave Acosta marketing materials that described the fund as a liquid, “conservative blended fund” with 90% principal protection. Acosta presented those materials to potential investors along with an assurance that Kinetic Group was registered to do business in Puerto Rico, the SEC said. In addition, Acosta reported back to Kinetic Group on the financial, investing and lending needs of potential investors so that Kinetic Group could generate custom case studies offering solutions to those potential investors’ needs.
According to the SEC, Acosta consented, without admission or denial of the allegations, to the entry of a civil court judgement in his case that includes a permanent injunction, disgorgement of the proceeds related to the sale of Kinetic Funds I and a civil money penalty to be determined at a later date.