South Florida Arbitration & Litigation Lawyer Blog
Investment Advisor Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
January, 2012:
SEC Obtains Emergency Relief Against St. Louis-Based Private Investment Funds after Charging Them and Their Principal with Fraud
The Securities and Exchange Commission recently announced that it has obtained an emergency court order to freeze the assets of St. Louis-based private investment funds and management firms after suing them and their principal for a scheme to defraud investors.
The SEC alleges that Burton Douglas Morriss diverted more than $9 million of investors’ money to himself without their knowledge or consent, and he mischaracterized the transfers as ‘loans” in his companies’ books. Morriss misused the money for alimony payments, interest on personal loans, and costly vacations including an African safari.
“Morriss attempted to hide his illegal transfers of investor funds by calling them ‘loans’ when in reality he had no intention of paying back the money and instead went on a spending spree,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “It is fraud, pure and simple.”
The SEC’s complaint filed in federal court in St. Louis charges Morriss, his two private investment funds MIC VII LLC and Acartha Technology Partners LP, and his management firms, Gryphon Investments III LLC and Acartha Group LLC. Morriss Holdings LLC, an entity to which Morriss transferred some of the investor funds, is named as a relief defendant.
The SEC alleges that Morriss raised $88 million from investors who were told their funds would be invested in emerging financial services and technology companies. Instead, the SEC said Morriss transferred millions to himself and Morriss Holdings and used them for personal expenses. In an attempt to conceal his scheme, the fraudulent transfers that Morriss made to himself were recorded as “loans” on the books of Morriss’s companies. However, the transfers were never truly loans because Morriss did not intend to repay them. Morriss also recruited new investors for one of his funds without the unanimous consent of existing investors as required, thereby diluting their holdings.
Subsequent to the institution of the action, the Honorable Carol E. Jackson granted the SEC’s request for asset freezes, the appointment of a receiver, and other emergency relief to prevent further dissipation of investor assets. The SEC seeks to bar Morriss from serving as a public company officer or director; it also seeks permanent injunctive relief and financial penalties against Morriss and the entity defendants, and disgorgement of all ill-gotten gains from them and relief defendant Morriss Holdings.