Recycling Scam Perp Busted:
Paul Merklingler of Novi, Mich., raked in $7.2 million from five investors between September 2006 and July 2007 with a simple investment opportunity: interest in a tire shredding truck that a leasing company would lease from the investor, and purportedly use in business operations, as well as a $10,000 warrant for a 1 percent interest in the leasing company.
Merklinger told investors the specialized truck was designed, and would be running shortly. He also promised investors that the leasing company would pay them $15,000 in monthly leasing fees and investment interest, and, that after five years, the investors could expect returns of up to 372 percent and the warrant would be worth $1.2 million.
The venture didn't pass the SEC's smell test in July and in August, the agency put a stop to Merklinger's scam. According to the SEC release, “The tire shredding equipment didn't work, there was no reasonable basis for the purported income and return figures and the investors never received a dime from the investment.”
Instead, Merklinger used more than $950,000 of investor funds to pay his rent and back taxes, and for the purchase of luxury cars, boats and extravagant furnishings and landscaping for his home. Merklinger, who, unbeknownst to clients, had been barred from participating in Ontario, Canada's securities markets for a prior scheme, also shared more than $300,000 of the stolen funds with his adult son.
$255 Million Affinity Scam:
The SEC has charged two men with perpetrating a Ponzi-type scheme that raised approximately $255 million from 1,200 investors, primarily members of the Orthodox Jewish community. Steven Byers, 46, a resident of Oakbrook, Ill., and Joseph Shereshevsky, 51, of Norfolk, Virginia, are principals of Wextrust Equity Partners, which orchestrated at least 60 securities offerings through private placements, and created roughly 150 limited liability type companies to issue offerings that would, purportedly, fund the acquisition of commercial real estate.
Instead of buying real estate properties, the men diverted as much as $100 million for other unauthorized purposes, including — according to the allegations in the SEC complaint — a current effort to raise funds through four fraudulent offerings to pay back investors in previous ones. “This case demonstrates that the Commission will aggressively seek out and pursue affinity frauds,” said Scott Friestad, Deputy Director of Enforcement, of the case. “It is also a signal to investors to be wary of friends touting great investment ‘opportunities.’”