Two Utah men who met while in prison for orchestrating unrelated securities fraud schemes have been charged by the SEC with new schemes that cost investors nearly $11 million, the SEC announced today.
The SEC also charged two other Utah men and a Utah company for their involvement in the fraud. The defendants agreed to settlements without admitting guilt or innocence. One defendant also pled guilty to criminal charges, was sentenced to five years in prison and ordered to pay restitution of more than $10 million.
The alleged fraud centered around selling shares in a high-yield trading program that were advertised as paying 20% to 50% in returns per month, the SEC complaint said. In reality, the investors’ money was used to pay earlier investors and to pay personal expenses of the defendants, the complaint said.
According to the SEC's complaint, Thomas J. Robbins of Heber City and Daniel J. Merriman of Kaysville met while incarcerated for separate and unrelated securities fraud convictions. After they were released, they created a proprietary, algorithmic trading program. Starting in 2016, the two solicited investor funds through a series of misrepresentations about the program, including that the Church of Jesus Christ of Latter-day Saints was an investor. They used alleged connections to the church to solicit new investors, the complaint said.
Robbins and Merriman told investors that Robbins had a “spiritual revelation” in 2008 about an exclusive algorithm for trading currencies, commodities, indices, stocks, bonds, ETFs, and other instruments but could not bring the vision to reality until 2011, when the technology caught up to his vision, the complaint said.
In 2017, the complaint alleges, Robbins and Merriman, together with Clark J. Madsen and Mark W. Wiseman, both of Sandy, Utah, devised a new scheme to fraudulently sell millions of shares of stock in ConTXT, a technology company founded by Madsen. Because Robbins and Merriman were convicted felons, their involvement in ConTXT was concealed, the complaint said.
The complaint alleged that Robbins, Merriman and Wiseman lied about the use of investor funds, misrepresented ConTXT's financial condition, and misappropriated investor funds for their personal benefit. The SEC complaint filed in U.S. District Court for the District of Utah charged all defendants with fraud and charged Robbins and Merriman with violation of the broker-dealer registration requirements.
Robbins has been order to pay $848,567 in disgorgement plus prejudgment interest of $142,714. Merriman agreed to pay disgorgement of $744,191 plus prejudgment interest of $121,869, and a civil penalty of $192,768. Madsen agreed to pay disgorgement of $29,000 plus prejudgment interest of $3,531, and a civil penalty of $96,384. Wiseman agreed to pay disgorgement of $68,500 plus prejudgment interest of $8,341, and a civil penalty of $96,384. ConTXT agreed to pay disgorgement of $269,187 plus prejudgment interest of $32,779, and a civil penalty of $269,187.
In a parallel criminal action related to the trading program, Robbins pled guilty to securities fraud and money laundering and was sentenced to five years in prison and ordered to pay more than $10 million in restitution in December, according to the U.S. Attorneys Office for the District of Utah.