Securities Fraud and Misrepresentation Litigation Attorney, Russell L. Forkey, Esq.
SEC Charges Philadelphia-Based Business Owner For Defrauding Investors Through an Offering Scheme Involving U.S. Treasury Strips
The Securities and Exchange Commission recently filed a Complaint in United States District Court for the Southern District of New York charging Tyrone L. Gilliams and his company TL Gilliams, LLC with fraud for misappropriating approximately $5 million from investors through an offering scheme involving U.S. Treasury STRIPS. According to the SEC’s Complaint Gilliams and TLG, from at least June 2010 through April 2011, claimed, among other things, to have a U.S. Treasury STRIPS Trading Program. According to the Complaint, Gilliams claimed that he would pool and use investor money to engage in large purchases and sales of Treasury STRIPS and that the trading program would yield weekly returns of five percent and was virtually risk-free.
U.S. Treasury STRIPS are the individual interest payment components of a United States Treasury bond, payable semi-annually over the life of the bond. These STRIPS are then separately tradeable like other securities. The term STRIPS derives from the program implemented by the Treasury to facilitate this type of trading, entitled “Separate Trading of Interest and Principal of Securities.”
The Complaint further alleges that contrary to his representations about the Treasury STRIPS Trading Program, Gilliams did not invest any of the funds received from investors in any U.S. Treasury STRIPS, nor in any program that invested in U.S. Treasury STRIPS. Rather, Gilliams used the misappropriated money to support his lavish lifestyle, including expenditures on hotels, nightclubs, airfare, designer apparel, jewelry, luxury car rentals, car payments and private school tuition for his children. In addition, the Complaint alleges, Gilliams caused TLG to spend at least $765,000 to sponsor a so-called celebrity charitable event in Philadelphia that culminated in a star-studded, black-tie gala on December 18, 2010, at the Ritz Carlton in Philadelphia.
In February 2011, shortly after misappropriating the $5 million, the Complaint alleges that Gilliams filed paperwork with the Commission indicated TLG’s intent to raise an “indefinite” amount of funds from investors in connection with the “Black Fox Fund,” an unregistered entity created by Gilliams. The Complaint also alleges that Gilliams has made recent efforts to raise money from investors.
The Complaint further alleges that Gilliams, the architect of the fraudulent scheme, used a series of middlemen who had access to investors or who controlled investment funds themselves. Gilliams promised the middlemen varying finder fees, and Gilliams paid some of the middlemen from the $5 million he ultimately obtained. Gilliams provided the middlemen and potential investors detailed information about his own experience trading Treasury STRIPS and his purported Treasury STRIPS Trading Program, including information regarding investment minimums, the expected trading frequency, and the expected rate of returns. According to the Complaint, nearly all of this information was false.
The SEC’s Complaint charges Gilliams and TLG with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks injunctive relief, disgorgement, prejudgment interest and civil monetary penalties.
The U.S. Attorney’s Office for the Southern District of New York today filed an indictment charging Gilliams with wire fraud and securities fraud.