The U.S. Securities and Exchange Commission (SEC) recently announced fraud charges against two attorneys accused of making undisclosed risky investments and in some instances outright stealing money they obtained in escrow accounts from small business owners seeking commercial loans.
In the report, the agency alleged that Jay Mac Rust and Christopher K. Brenner collected $13.8 million acting as escrow agents between their clients and a purported loan company called Atlantic Rim Funding.
Rust and Brenner convinced clients that their deposits of 10% of the desired loan amount would be held safe and only used to purchase liquid, government-backed securities that Atlantic would then leverage to obtain their loans.
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However Atlantic had no ability or intention to obtain these loans according to the SEC. When this became obvious to Rust and Brenner they each continued to make misrepresentations to clients and collected more money anyway. Rust siphoned $662,000 and Brenner took $595,000 in client funds to pay themselves and others, and they gambled on risky securities derivatives with the remainder of the money.
Both attorneys opened numerous securities accounts at broker-dealers to make these trades, and avoided scrutiny by lying that the money being used was their own cash rather than client assets.
Andrew M. Calamari, Director of the SEC’s New York Regional Office, commented:
We allege that these attorneys betrayed the trust of their clients by luring them with promises of small business loans that never materialized. They continued to recruit new escrow clients to repay earlier clients and did everything but keep client money safe as they represented they would.
The SEC examiners ultimately discovered this scheme when examining one of the brokerage firms where trades were being placed.
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