The Securities and Exchange Commission (“SEC”) charged Jonny Ngo, Donato “Mick” Baca, Jr., and NL Technology, LLC with defrauding hundreds of investors by running a Ponzi scheme.
A Ponzi scheme is a type of investment fraud that sustains itself by paying claimed returns to existing investors with fresh money from new investors, while also enriching their creators. They often collapse when they fail to attract sufficient new investment to support the promised returns. There are a number of common “red flags” that are often associated with Ponzi schemes, including:
- Promised high returns with little risk
- Returns that are unusually consistent
- An implication that you are lucky to be included as part of the investment opportunity because of a special relationship
- Investments that are sufficiently secretive or complex that the specifics of how returns are generated are difficult to identify
- Lack of reasonable reporting
- Difficulty in cashing out or receiving payments, or in many cases providing incentives to roll your returns into your investment
The existence of a Ponzi scheme is often evidenced with the help of a forensic accountant who can trace funds and identify Ponzi scheme characteristics, including how and why the underlying economics of the business were unsound and could not be indefinitely continued.
According to the SEC complaint, the parties in question raised more than $61 million from over 350 investors between 2013 and 2017. Investors were promised returns of 5-15% over a a period of two weeks to 45 days. The money raised was claimed to be used for a wholesale technology import business, but the SEC indicates it instead was used to repay prior investors and fund a lavish lifestyle.
Mr. Ngo was also alleged to have fabricated bank statements, financial records, and other documents, as well as having impersonated third parties in order to conceal the fraud. Mr. Ngo and NL Technology have agreed to settle with the SEC, but without admitting or denying the allegations. The settlement requires Mr. Ngo disgorge $4.5 million of ill-gotten gains, along with $245,726 in prejudgment interest and a civil penalty of $480,000.