Thursday, October 29, 2020

Texas businessman indicted for defrauding retired San Antonio police officers

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A Fair Oaks Ranch businessman defrauded retired San Antonio police officers and other investors out of more than $14 million in an investment scheme, federal securities regulators allege.

The Securities and Exchange Commission filed a lawsuit in San Antonio federal court against Victor Lee Farias and his Boerne company, Integrity Aviation & Leasing LLC, alleging most of the money raised from investors from 2013 through January 2019 was misused.

Farias, 47, told investors their money would be used to purchase aircraft engines and other parts for lease or sale to major airlines, the SEC says. He promised their investments would achieve annual returns of 10 to 12 percent.

Instead, Farias used about $6.5 million to pay investors “Ponzi-like” returns. That encouraged many investors to reinvest their principal with the company.

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He also spent $2.7 million on a friend’s gas station and convenience store project and paid almost $1 million in “undisclosed and impermissible” sales commissions to Integrity staff, the suit states.

Farias also misappropriated $2.4 million for his own use — including meals, entertainment, luxury retail purchases, auto expenses, travel, rent, jewelry, and golf and country club expenses — the suit says.

Many of the 88 investors in at least five states, including retired city police officers and other emergency services personnel, withdrew funds from their retirement accounts and deposited them in newly created, self-directed individual retirement accounts so they could invest with Farias.

A retired San Antonio police officer and his wife invested $531,000 from their IRAs. The amounts invested ranged from $1,000 to $600,000, the complaint says. Investors’ monies were then commingled.

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Self-directed IRAs allow investment in a broader — and potentially riskier — portfolio of assets than other types of IRAs, the SEC has warned. Risks include fraudulent schemes, high fees and volatile performance.

“As we allege, Farias encouraged his victims to invest their hard-earned retirement nest eggs into his fraudulent business,” David Peavler, the SEC’s regional director in Fort Worth, said in statement. “Investors should always proceed cautiously whenever someone suggests moving funds from traditional retirement accounts moving funds from traditional retirement accounts to self-directed IRAs to make an investment.”

A working phone number for Farias couldn’t be found. He’s accused of violating anti-fraud and federal securities laws.

The complaint seeks an injunction preventing Farias from violating securities laws and purchasing and selling securities. The SEC also wants him to turn over ill-gotten gains from the alleged scheme, plus interest and civil penalties.

Farias misrepresented his industry experience and background, the SEC says in its lawsuit. He apparently claimed to have been a managing director of a broker dealer.

The website of the Financial Industry Regulatory Authority, the securities industry’s self-policing organization, shows Farias worked as a securities broker but no longer is registered. He had worked for San Antonio’s Capital Guardian LLC, but his employment ended in 2013 — the same year he began the alleged scheme with Integrity.

According to the complaint, the firm peddled purportedly secured promissory notes. Integrity issued the notes, which Farias said were secured by the company’s assets.




However, the SEC says he never took any steps to file documents to secure the investors’ interests. Also, he actually had pledged the assets as collateral in a separate deal to benefit another company he owned.

In 2015, Farias began circulating a private placement memorandum (PPM) that described the promissory note offering, which sought to raise $50 million. The PPM detailed authorized uses of investor funds, including for buying and selling assets, salaries and administrative expenses.

An offering brochure stated that Integrity was expected to generate more than $15 million a year in revenue and have an asset value of more than $35 million.

Integrity’s website, meanwhile, “gave the false impression” of its “size, success, sophistication, and experience,” the SEC says. The site falsely claimed the company used a “proprietary algorithm” to “determine if a specific aircraft engine was suitable for purchase.”

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By spring 2018, the SEC says new investment funds dried up, so Farias no longer could make quarterly interest payments to investors. He told investors at a meeting that a meritless lawsuit had frozen Integrity’s accounts, which the SEC was not true.

Even after learning of the SEC’s investigation, Farias continued to mislead investors, it says. He used letterhead from the SEC’s investigative subpoena as “proof” for investors that he was working with the SEC to take the company public, the complaint says.

Original article on expressnews.com

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