A Scotts Valley investment adviser was charged on Thursday with running a $60 million investment fund like a Ponzi scheme and defrauding his investors, the Securities and Exchange Commission said.
According to the SEC, John A. Geringer, who managed the Scotts Valley-based GLR Growth Fund, used “false and misleading marketing materials to lure investors into believing that the fund was earning double-digits annually.” In reality, Geringer’s trading generated “consistent losses” and he eventually stopped trading all together, the SEC said.
“Geringer painted the picture of a successful fund weathering America’s financial crisis through a diversified, conservative investment strategy,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “The reality, however, was the complete opposite. Geringer lost millions of dollars in the market, tied up remaining investor funds in a pair of illiquid private companies, and lied about it in phony account statements.”
An SEC complaint filed in federal court in San Jose on Thursday said that Geringer raised more than $60 million since 2005, mostly from investors in the Santa Cruz area. The complaint also stated that Geringer used fraudulent materials to claim that the fund had between 17 and 25 percent annual returns in every year of the fund’s operation since it was started in 2003. The materials also claimed 25 percent returns in 2001 and 2002, before the fund even existed.
The SEC said that by mid-2009, the fund did not invest in publicly-traded securities at all. The fund instead invested heavily in illiquid investments in two private startup technology companies. The rest of the money was paid to investors in Ponzi-like fashion with money from newer investors.
The SEC is seeking financial penalties, disgorgement of ill-gotten gains, preliminary and permanent injunctions, and other relief. Geringer, the fund, and two of the related entities consented to the entry of a preliminary injunction and a freeze on the fund’s bank account.