James Clements and Zeina Smidi
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21910 / March 30, 2011
SEC v. James Clements and Zeina Smidi, Civil Action No. 11-cv-60673-LSS, (S.D. Fla.)
SEC CHARGES SOUTH FLORIDA MAN AND WOMAN IN $30 MILLION PONZI SCHEME
The Securities and Exchange Commission today charged two South Florida residents for conducting a $30 million Ponzi scheme with funds primarily raised by offering and selling unregistered investment contracts and promissory notes to hundreds of investors nationwide from 2005 until the summer of 2007.
The SEC alleges that James Clements and Zeina Smidi of Plantation, Florida, through the companies they jointly controlled: MRT, LLC; MRT Holdings, LTD; and Maximum Return Transaction, LLC, collectively "MRT"; operated a Ponzi scheme that offered investors guaranteed monthly returns as high as 11%. From 2005 until the end of 2006, MRT, Clements and Smidi told investors that MRT used investor proceeds to trade foreign currencies and touted MRT's investment success to draw in new investors. The SEC's complaint further alleges that MRT and Clements used certain investors who agreed to be "account managers" to solicit hundreds of investors through informal gatherings and word of mouth.
According to the SEC's complaint, Clements explained that from the foreign currency trading profits, MRT would pay a small percentage of each investor's returns to the investors' account manager, pay each investor their promised rate of return, and keep any excess profits. Clements and account managers referred investors to Smidi who provided investors information on how to effect their investment in MRT and where to wire funds.
The SEC alleges in its complaint that in June 2007, Clements told MRT's account managers that MRT would no longer be trading foreign currencies. Clements and Smidi instead claimed in a letter to investors they wanted MRT's money working with the best Swiss banks and advisors and further advised investors they could choose to roll over their existing investment and make future ones into a fixed rate account with a one-year holding period that earned up to 25% annually or a high-yield savings account that earned up to 15% annually but allowed monthly withdrawals.
The SEC alleges that MRT's claims were baseless and fraudulent and in reality, Clements and Smidi actually operated a Ponzi scheme with investors' monies. MRT never traded more than a fraction of what it collected from investors and overall, lost approximately $65,000 trading in foreign currencies. Further, the SEC alleges that MRT never directly deposited investor funds with a Swiss bank and that the returns MRT paid to investors came from subsequent investor deposits.
The SEC also alleges that in addition to misleading investors about MRT's use of investor funds, Clements and Smidi also siphoned approximately $3 million of MRT investor monies to their personal bank accounts. They additionally paid out approximately $3 million for travel, expenses, and luxury items.
The SEC's complaint charges Clements with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC's complaint charges Smidi with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks a permanent injunction, sworn accounting, disgorgement of ill-gotten gains with prejudgment interest, and a civil money penalty against Clements and Smidi.
The SEC appreciates the assistance in this matter by the State of Florida Office of Financial Regulation.