SEC Prevails in Lawsuit Involving $50 Million Ponzi Scheme

On March 6, the US District Court for the Eastern District of Michigan ordered the former leaders of an investment group to pay more than $8 million in disgorgement and fines for their role in running a $50 million real estate Ponzi scheme. John Bravata founded Bravata Financial Group and BBC Equities, and Richard Trabulsy served as chief executive officer.  Between 2006 and 2009, they received more than $50 million from approximately 440 investors. The Securities and Exchange Commission alleged that defendants engaged in the unauthorized sale of securities to raise the funds, and that the securities were offered as part of a Ponzi scheme in which the companies paid investors “returns” with money from subsequent investors, as opposed to proceeds from the companies’ investments. According to the SEC, Bravata and Trabulsy used investors’ money to purchase personal luxury goods. In 2009, the SEC brought suit against the companies, Bravata, Trabulsy, Bravata’s son and Bravata’s wife as “relief defendant,” alleging that they unlawfully sold unregistered securities, defrauded investors in violation of the Securities Act of 1933 and Securities Exchange Act of 1934 (Exchange Act), and unlawfully sold securities without registering under the Exchange Act as broker dealers. While the suit was pending, a jury convicted Bravata and his son of various counts of conspiracy and wire fraud stemming from the scheme, and Trabulsy pleaded guilty to the same. Based on the criminal convictions, the court ordered Bravata and his wife to disgorge more than $5.2 million earned from the Ponzi scheme, in addition to more than $1.2 million in interest, and ordered Bravata’s son to disgorge $444,384 plus $98,474 in interest. The court also ordered Bravata to pay a $1.8 million penalty and his son to pay a $130,000 penalty. 

Securities and Exchange Commission v. Bravata et al., Case No. 09-12950 (E.D. Mich. Mar. 6, 2014).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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