A New York investment advisor and the two entities he controls violated antifraud provisions of the federal securities law by misappropriating millions of dollars from investors, the Securities and Exchange Commission alleges.
Martin Ruiz is accused of inducing at least 56 investors, many of whom are elderly clients of Ruiz’s New Mexico-based RIA Carter Bain Wealth Management, to invest at least $10.6 million in the Nevada-based limited partnership RAM Fund, from as early as March 2011.
He falsely claimed that their funds would be used for “safe” investment purposes, such as acquiring real estate and making commercial loans, the SEC alleges in its complaint.
Instead, Ruiz allegedly misappropriated the vast majority of the investors’ funds to support his lavish lifestyle. He transferred approximately $9.2 million from RAM to three other entities he owns and controls. Then, in a “waterfall fashion,” he used his sole control to make various payments that personally benefited him, the complaint alleges.
These included paying hundreds of thousands of dollars for his residences in Manhattan and Santa Fe, covering $3 million in credit card bills and making student loan payments, according to the SEC.
He allegedly used the new investor funds to make approximately $1.4 million in Ponzi-like payments to some investors, thus creating the illusion RAM was a profitable enterprise.
However, its bank accounts have no income from real estate, lending activity or otherwise, the SEC alleges. The federal regulator obtained emergency relief, including a temporary restraining order and asset freeze, against Ruiz, Carter Bain, and RAM on Aug. 9.
“As we allege in the complaint, Ruiz recommended that his advisory clients invest in an entity based on false claims and then stole their money,” Kurt L. Gottschall, director of the SEC’s Denver Regional Office, said in a statement. “Clients should be able to trust that their investment advisor will invest their assets as promised.”
Unfortunately, advisors and firms stealing investors’ money to fund their lavish lifestyles aren’t so uncommon anymore, said veteran securities attorney Bill Singer, of Herskovits PLLC in New York City.
“They take the money, and it never winds up where it’s supposed to go,” he said. “That’s the thing that absolutely infuriates me with many of these cases, where they just don’t care that it’s an 80-year-old guy that’s dying of dementia. They don’t care that they ripped off somebody that they knew had Alzheimer’s, and you can’t make people feel bad if they have no morality, to begin with.”
Potential clients should do their due diligence before making any substantial investments, but that’s not always the easiest thing for vulnerable clients like the elderly or unsophisticated investors. Therefore, Singer wishes the regulatory community would be more proactive and have better systems to prevent fraud.
“The lurid headline is all Rolexes and condominiums — ‘He went to Vegas, and he bought a racehorse’ — but the sad part is, it’s an elderly person, who’s either in assisted living or in a home that’s rundown, and they don’t know they have no money. And it’s all been lost,” he said.