Securities and Exchange Commission v. Emanuel L. Sarris, Sr. and Sarris Financial Group, Inc., Civil Action No. 12-cv-04272-TON (E.D. Pa.)
The Securities and Exchange Commission recently filed an action for fraud against Bucks-County, Pennsylvania-resident Emanuel L. Sarris, Sr. (“Sarris”) and his firm, Sarris Financial Group, Inc. (“Sarris Financial”), for their role in facilitating a massive Ponzi scheme operated by another individual (who the Commission already sued). The SEC’s complaint, filed in the U.S. District Court for the Eastern District of Pennsylvania, alleges that, from 2001 through 2009, Sarris (through Sarris Financial) convinced over 70 individuals to invest over $30 million in private funds that purportedly traded in foreign currencies, called the “Kenzie Funds.” The Kenzie Funds, however, actually were a massive Ponzi scheme that defrauded at least 400 investors out of more than $105 million. The SEC already obtained final judgment, in the U.S. District Court for the Northern District of Illinois against the perpetrator of the Kenzie fraud, which ordered the perpetrator to pay $44 million in disgorgement and prejudgment interest and a $150,000 civil penalty.
According to the SEC’s complaint, Sarris and Sarris Financial, when selling the Kenzie Funds, falsely represented their relationship with the Kenzie Funds; falsely claimed to have seen the Kenzie Funds’ foreign currency trading and banking; made unverified claims about the Kenzie Funds’ safety, performance, and legitimacy; and, in classic Ponzi scheme fashion, twice proposed that the Kenzie entities use existing or new investor money to pay redemptions to departing investors. In fact, according to the SEC’s allegations, unbeknownst to investors, Sarris was employed by one of the companies that managed the Kenzie Funds to solicit investment in the Kenzie Funds, and Sarris Financial received incentive fees for inducing investments in the Kenzie Funds; Sarris and Sarris Financial never saw any of Kenzie’s trading or banking; they actually did little to investigate the Kenzie Funds, instead ignoring and concealing numerous red flags that raised significant questions about the entities; and Sarris and Sarris Financial never disclosed their proposals to make Ponzi-like payments to their clients.
According to the SEC’s complaint, Sarris and Sarris Financial violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.