(HedgeCo.Net) The Securities and Exchange Commission announced charges against a San Antonio-area businessman and his company for running a multi-million dollar fraudulent scheme that victimized scores of investors, many of them retired San Antonio police officers and other first responders.
The SEC’s complaint alleges that Victor Lee Farias and his company, Integrity Aviation & Leasing (IAL), raised $14 million from investors, promising that they would use the funds to purchase engines and other aircraft parts for leasing to major airlines. As alleged, Farias and IAL falsely touted Farias’s supposed investment experience and IAL’s purported competitive advantages, such as an algorithm that supposedly identified profitable leasing opportunities, and represented that all investments would be secured by IAL’s assets. According to the complaint, many of the investors were retirees who, in order to invest their retirement funds, had to withdraw the funds from their retirement accounts and deposit them in newly created self-directed IRA accounts. The complaint alleges that IAL never purchased any engines and spent only a small portion of investor funds on aircraft parts. Farias and IAL allegedly diverted more than $11.6 million for unauthorized purposes, such as making $6.5 million in Ponzi-like payments to investors and investing $2.7 million to fund a friend’s business. Farias also allegedly misappropriated $2.4 million for personal expenses. According to the complaint, Farias continued to mislead investors after he learned of the SEC’s investigation, including by using the letterhead from the SEC’s investigative subpoena as “proof” for investors that he was working with the SEC to take IAL public.
The SEC’s Office of Investor Education previously issued an investor alert on the risks associated with use of self-directed IRAs.
The SEC’s complaint, filed in the U.S. District Court for the Western District of Texas, alleges that Farias and IAL violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.