South Florida Arbitration & Litigation Lawyer Blog
Securities and Exchange Commission v. A.L. Waters Capital, LLC, et al., Civil Action No. 12-cv-10783-DJC (District of Massachusetts)
United States of America v. Arnett L. Waters, Criminal No. 12-cr-10336-DJC (District of Massachusetts)
Defendant in SEC Action Charged by United States Attorney’s Office for the District of Massachusetts
The Securities and Exchange Commission recently announced that on October 17, 2012, the United States Attorney’s Office for the District of Massachusetts charged Arnett L. Waters, a resident of Milton, Massachusetts, with multiple schemes to defraud investors and business clients, as well as with obstruction of justice. Waters is also a defendant in an action filed by the Commission on May 1, 2012. The criminal information charges Waters with sixteen counts of securities fraud, mail fraud, money laundering, and obstruction of justice.
According to the criminal information, from at least 2007 through 2012, Waters used fictitious investment-related partnerships to draw in investors, misappropriate their investment money, and spend the vast majority of it on personal and business expenses and debts. Waters is alleged to have raised at least $839,000 from at least thirteen investors, including $500,000 from his church in March 2012.
The criminal information also alleges that Waters engaged in a criminal scheme to defraud clients of his rare coins business using interstate commerce and the mails. Under this scheme, Waters defrauded coin customers out of as much as $7.8 million by selling coins at prices inflated, on average, by 600% and by inducing coin purchasers to return coins to him, on the false representation that he would sell those coins on the customers’ behalf, when, in fact, he sold most or all of the coins and kept the proceeds for himself. The criminal information further alleges that Waters engaged in money laundering through two transactions totaling $77,000.
Finally, the criminal information alleges that Waters made multiple misrepresentations to Commission staff, including that there were no investors in his investment-related partnerships, in order to conceal the fact that investor money was misappropriated in a fraudulent scheme. Waters is charged with obstruction of justice related to this conduct.
The filing of the criminal information follows the Commission’s complaint filed in federal court in Boston on May 1, 2012 against Waters and two of his companies, A.L. Waters Capital, LLC and Moneta Management. The Commission’s complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The Commission also alleges that Arnett Waters and Moneta Management violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Complaint also named Arnett Waters’ wife, Janet Waters, and a third entity controlled by Arnett Waters, Port Huron Partners, L.P., as relief defendants. In its action, the Commission seeks the entry of a permanent injunction against the defendants, disgorgement of ill-gotten gains by the defendants and relief defendants plus pre-judgment interest thereon, and the imposition of civil monetary penalties against the defendants.
On May 3, 2012, the U.S. District Court in Massachusetts issued a preliminary injunction in the SEC’s action that, among other things, prohibits the civil defendants from continuing to violate certain federal securities laws and freezes the assets of the defendants.
On August 7, 2012, the Commission also filed a civil contempt motion alleging that Arnett Waters had willfully violated the Court’s preliminary injunction order. The Commission’s motion alleged that Waters had established an undisclosed bank account, transferred funds to that account, dissipated assets, and failed to disclose the bank account as required by the Court. On August 9, 2012, the United States Attorney’s Office for the District of Massachusetts filed a separate criminal information charging Waters with two counts of criminal contempt based on the same allegations. On October 2, 2012, Waters pled guilty to both counts of criminal contempt, and the Court ordered him detained pending sentencing on December 5, 2012.
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