Not a Lexis+ subscriber? Try it out for free.

Banking and Finance

Self-Described "Idiot" Charged With $1.5 Million Ponzi Scheme

 A New Jersey man was charged with multiple violations of federal securities laws for operating what authorities allege was a Ponzi scheme that duped investors out of over $1.1 million. William Wells, along with his company, Promitor Capital Management, LLC ("Promitor"), was named in a complaint filed in a New York federal court by the Securities and Exchange Commission. The Commission is seeking disgorgement of ill-gotten gains, imposition of civil monetary penalties, injunctive relief, and pre-judgment interest. In a parallel action, Wells was also named in a criminal complaint filed by the U.S. Attorney's Office for the Southern District of New York.

Wells founded Promitor in 2009, soliciting friends and colleagues to invest in a fund that would primarily engage in long trading of equity securities. According to a Fund Overview distributed to certain investors, Promitor sought to "achieve returns exceeding those of the BarclayHedge Event Driven Index by 25%" through the use of options strategies and capitalizing on market sentiment prior to market-moving events such as earnings announcements. The Fund Overview also advertised that Wells was a Registered Investment Advisor. Wells and Molitor maintained several brokerage accounts at TD Ameritrade and USAA, and raised at least $1.3 million from investors.

However, Wells was not a Registered Investment Advisor and had never taken any examination to attain the title. Nor did Wells cause Molitor to engage in the trading patterns advertised in the Fund Overview. Indeed, instead of placing long-term trades in a basket of equity securities, Wells engaged in a series of short-term, high-risk, options trades that resulted in total losses exceeding $500,000. According to the Commission's Complaint, which is embedded below, Wells suffered annual trading losses from 2009 to 2015  

Despite these trading losses, Wells allegedly caused Molitor to make the promised payments to investors beginning in 2012. Given Wells' poor investing results, the payments to investors were paid using funds from other investors - a classic hallmark of a Ponzi scheme. Wells ultimately paid out at least $319,000 in purported interest payments to investors. During that time period, Wells also transferred at least $39,000 to his own personal account.

According to the Commission, Wells' scheme began to collapse in early 2015 in the face of mounting redemption requests from investors. Indeed, as of February 24, 2015, Promitor had a balance of -$2.76 in its brokerage accounts and $97.72 in its checking account. In a text-message exchange between Wells and an unnamed investor reproduced in the Commission's Complaint, Wells offered a varying litany of excuses concerning his inability to satisfy that investor's redemption request, ultimately resulting in that investor's inquiry whether Wells was "running a Ponzi scheme?"  Wells later admitted that:

My explanation is that I'm an idiot and was trying to get some big trades to [h]it...To make you more money.

The Commission's Complaint

For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

For more information about LexisNexis products and solutions, please connect with us through our corporate site.