In early 2003, ads began appearing in about a dozen major California newspapers promising 12 to 15 percent annual returns on an investment described as “safe,” “IRA/401K approved” and “secured by California real estate.”
Those calling about the investment were told by a salesperson named William Wright that the Rose Fund, the San Diego-based firm that placed the ads, was an experienced mortgage lender that outperformed the stock market.
Wright should have told callers that he and his Rose Fund associates were hoping to pick some ponies at a nearby race track.
The Securities and Exchange Commission (SEC) has filed a federal lawsuit against the Rose Fund and its principals, accusing the firm of running a fraudulent Ponzi scheme that squandered at least $1 million of about $3.3 million raised from investors.
The firm spent “hundreds of thousands of dollars at a horse racing track located a few minutes from the company’s office,” the SEC said in a written statement.
Named in the suit were Wright and another San Diego man, Paul E. Nelson, along with Michael Alexander of Solona Beach, Calif., who is identified as the company’s president.
Neither the defendants nor their lawyers could be reached for comment.
Earlier this month, Alexander was held in contempt of court after he was accused of gambling another $33,183.
U.S. District Judge William H. Alsup of the Northern District of California in San Francisco had issued a temporary restraining order “freezing all remaining assets and directing defendants not to commit future violations” of federal securities laws, according to the SEC.
But the commission said that Alsup found Alexander “had diverted and used funds for gambling in violation of two orders prohibiting such acts.”
Alexander was ordered to deposit $33,183 with the court’s clerk by March 12.
In its lawsuit, the commission alleges that “investors responding to the (Rose Fund) ad were told by salesperson Wright that the Rose Fund’s Mortgage lending business was 30 years old and outperformed the stock market.”
“These representations were false,” the SEC said. “The company was only formed in late 2002 and did not make any home loans until mid-2003. Even then, the investments were risky, had not been approved by the IRS or any other government agency, and only a portion of the funds went toward actual home loans.”
By September of last year the Rose Fund and other entity, TRF Holdings, had raised at least $3.3 million from more than 100 investors, the SEC said. Of that, “at least $1.1 million of investor funds” were misappropriated, the commission said.
“In order to dupe investors into believing their investments were safe and profitable, the Rose Fund made payments representing purported interest from the company’s mortgage business,” the SEC said. “In reality, the money came from investors’ own funds — a classic Ponzi scheme.”
The company’s principals are accused of violating federal securities laws. Wright was also sued for acting as an unregulated securities broker.
