Linus Unah – Fourth Estate Contributor
Washington, DC, United States (4E) – New Jersey-based Verto Capital Management and its chief executive officer have agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier investors in Ponzi-like fashion, the U.S. Securities and Exchange Commission (SEC) announced Thursday.
The SEC said in a statement that the company tapped investor funds for the CEO’s personal use.
According to the SEC’s complaint, Verto Capital Management and its CEO William Schantz III raised about $12.5 million selling promissory notes to purportedly fund Verto Capital’s purchase and sale of life settlements, which are life insurance policies sold in the secondary market.
The SEC alleged that they misrepresented to investors that Verto Capital was a profitable company and investor funds would be used for general working capital purposes.
Verto Capital and other Schantz businesses had been unprofitable for several years, according to the SEC’s complaint.
So, Schantz took large distributions of investor funds for himself and using new investor money to repay earlier investors.
Verto Capital and Schantz also allegedly misled investors about the safety of the notes and collateral underlying them.
The SEC alleged that the promissory notes were primarily sold through a group of insurance brokers in Texas, and religious investors were targeted.
“As alleged in our complaint, investors were told that the life settlement-backed notes were short-term investments with an unlikely event of default,” said Andrew M. Calamari, director of the SEC’s New York office.
“Schantz and Verto misled investors about the company’s past performance and the value of the collateral, and they diverted significant investor funds for Schantz’s personal use.”
The SEC noted that a Fair Fund will be created to return money collected in the settlement to harmed investors.
Without admitting or denying the allegations, Schantz and Verto Capital agreed to repay of $3.43 million as well as an additional interest of $124,851 and a penalty of $600,000.
The settlement is subject to court approval.
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