By Greg Wright,
MBA, CFE, CFP®, CLU, ChFCCertified Financial Planner™
Certified Fraud Examiner
In response to questions from Veros Partners, Inc., investors, I offer my opinion on the likelihood they will see the return of even a small portion of their investment principal.
Based on other investment fraud schemes in past years, one might assume that these investors would be lucky to get pennies on the dollar. The funds appear to have been loaned to farmers for them to pay for the cost of seed, chemicals and if they were tenant farmers, cash rents. It may be that there are few if any, collateral assets supporting the partnership notes and loans. Farming is a pretty risky business.
However, it may be that investors could receive more than what is thought by many.
In the case of Veros, we saw a quick and decisive asset freeze and we may see an aggressive Securities Commissioner Carol Mihalik and SEC act in other areas as well. In another Ponzi scheme, Keenan Hauke, they were able to recover almost a third of investor’s money. This high salvage was due to prompt action and looking for deep pockets.
Commissioner Mihalik said of Hauke’s CPAs, “As the fund’s accountants, they had a responsibility to the investors to check Hauke’s work before issuing client account and tax statements.” The Commissioner thus was able to find $1,8 million from Hauke’s CPAs. With several more CPAs involved in Veros than Hauke, there may be even more “deep pockets” and potential proceeds available from errors and omissions insurance policies.
The regulators may also “clawback.” funds from previous investors. In a “clawback,” the receiver or trustee will seek the recovery of repayments of principal and any “false profits” that had been paid out to prior investors. This potential clawback might result in the clawback of funds from 2012 and other prior investors.
Whenever CPAs cross the line when providing investment advice, things can get pretty messy. If your CPA is also your investment advisor and insurance agent, aren’t you left with only two legs on the stool? Just asking.
Recent SEC comments may be found at “SEC Actions”:
Offering fraud: SEC v. Veros Partners, Inc., Civil Action No. 14-cv-659 (S.D. Ind. Filed April 22, 2015).
The complaint alleges that at least $15 million was raised from over 80 investors in a series of offerings in 2013 and 2014. The defendants in the action include: Veros Partners, Inc., a registered investment adviser; Matthew Haab, an accountant and financial planner who founded Veros, continues to own a significant percentage of the firm and serves as its President, Treasurer and a director; Tobin Senefeld, the CEO and a registered representative at Pin Financial LLC who previously settled a Commission free riding case; Veros Farm Loan Holding LLC, the issuer for the 2013 offering; FarmGrowCap LLC, the issuer for the 2014 offering; and PinCap LLC, the issuer for the 2014 Bridge Loan offering.
Veros has about 300 advisory clients. Matthew Haab manages the advisory business. In 2012, Veros began offering farm operating loans. Those loans were extended to farmers to pay for seed, fertilizer, equipment and related expenses for a particular crop cycle. The offerings were intended to fund twelve to fourteen-month operating loans for farmers during a particular crops season. They were to be repaid at the end of the season. Beginning in 2012, and continuing through 2014, the defendants solicited largely Veros clients to purchase interests in entities that held farm loans. In the 2012 offering about $4.8 million was raised from 59 investors. Those investors were told that the offering proceeds would be used to fund farm loans for the crop season. Investors would be paid 12% interest and repaid at the end of the season. By the end of the season, the underlying farm loans were not repaid in full nor were investors. For the 2013 crop season, the process was essentially repeated but investors were not told that portions of their funds would be used to pay investors from the 2012 offering or about certain fees. When the 2013 offering matured, investors were entitled to receive about $10.8 million. Funds were not available. Investors in a subsequent bridge loan program and the 2014 offering also were not paid because all the underlying loans were not repaid, and portions of their funds were diverted to pay for the shortfall in earlier offerings.
The complaint alleges violations of Exchange Act Section 10(b), each subsection of Securities Act Section 17(a) and Advisers Act Sections 206(1), 206(2) and 206(4). The complaint is pending. See Lit. Rel. No. 23246 (April 24, 2015)