SEC Charges Oregon Firm With Defrauding Investors

The U.S. Securities and Exchange Commission (SEC) recently charged an Oregon-based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors.

Aequitas Management and four affiliates allegedly defrauded over 1,500 investors nationwide into believing they were making health care, education and transportation-related investments when their money was really being used in a last-ditch effort to save the firm. Also some money from new investors was allegedly used to pay earlier investors.

According to the SEC’s complaint, the agency alleged that CEO Robert J. Jesenik and executive vice president Brian A. Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse. Former chief financial officer and chief operating officer N. Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors.
[nativounit]
The SEC detailed in its report:

• From January 2014 to January 2016, Aequitas raised money from investors by issuing promissory notes with high rates of return typically ranging from 8.5 to 10 percent.
• While Aequitas did use some investor money to acquire trade receivables in health care, education, transportation, and other consumer credit sectors, the vast majority was concentrated in student loan receivables of for-profit education provider Corinthian Colleges. Corinthian defaulted on its recourse obligations to Aequitas in mid-2014, which significantly exacerbated the firm’s already severe cash flow problems.
• The executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors. They used the outings to raise more money from investors.  Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.
• By November 2015, Aequitas could no longer meet scheduled redemptions. Last month, the firm dismissed two-thirds of its employees and hired a chief restructuring officer.