SEC Halts Alleged Diamond-Related ICO Ponzi Scheme

The SEC has obtained a court order to stop an alleged $30 million Ponzi scheme targeting more than 300 investors in the US and Canada. The complaint charges cryptocurrency business Argyle Coin and its principal, Jose Angel Aman, with using investor funds to run a Ponzi scheme.

“As alleged, Aman operated a complicated web of fraudulent companies in an effort to continually loot retail investors and perpetuate the Ponzi schemes as well as divert money to himself,” Eric Bustillo, director of the SEC’s Miami regional office, said in a release.

On May 20, the US District Court for the Southern District of Florida granted the SEC’s request for a temporary restraining order and temporary asset freeze against Aman, Argyle Coin, and other companies charged by the SEC as relief defendants. The SEC also named Harold Seigel and Jonathan Seigel in the complaint as co-owners with Aman.

The alleged fraud, said the SEC, is a continuation of a scheme Aman orchestrated with two other companies he owns called Natural Diamonds Investment Co. and Eagle Financial Diamond Group.

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According to the complaint, Aman and Jonathan Seigel attracted investors to invest in Argyle Coin by falsely claiming the investment was risk-free because it was backed by so-called “fancy colored diamonds.” They also promised to use investor funds to develop the cryptocurrency business. Instead, the SEC claims, they used new investor funds to pay prior investors their purported returns, and for Aman’s personal expenses, including rent on his home, purchases of horses, and riding lessons for his son.

“To lure investors, the defendants have knowingly or recklessly materially misrepresented how they would use investor funds,” said the SEC in its complaint. “Collectively, the defendants have misused or misappropriated more than $10 million of the $30 million raised from investors in a manner contrary to the representations to investors.”

The complaint alleges that between May 2014 and December 2018, Natural Diamonds, Aman, and the Siegels offered unregistered securities in the form of investment contracts in Natural Diamonds. They told prospective investors that Natural Diamonds would use investor funds to acquire raw colored diamonds known as “fancy colored diamonds,” which they would then cut, polish, and resell for profits that would bring in investment returns of 24% and the full return of investors’ principal within two years.

The SEC also said that when “the well began to run dry” in early 2015, Eagle, Aman, and the Seigels launched a second unregistered offering, this time in the form of investment contracts in Eagle. It alleges they made the same false representations about the use of investors’ funds, and fueled the Ponzi scheme by using Eagle investors’ funds to pay Natural Diamonds and Eagle investors their purported investment returns.

The SEC’s complaint charges Natural Diamonds, Eagle, Argyle Coin, Aman, and the Seigels with violating the securities registration provisions and also charges Natural Diamonds, Eagle, Argyle Coin, and Aman with violations of the antifraud provisions of the federal securities laws. The SEC’s complaint seeks disgorgement of the allegedly ill-gotten gains and prejudgment interest.

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Tags: Argyle Coin, Cryptocurrency, ICO, Jose Angel Aman, Ponzi Scheme, SEC

The $230 billion California State Teachers’ Retirement System’s (CalSTRS) long-range plan to increase internal management of assets is built on one key tenet: potential savings of hundreds of millions of dollars in fees paid to external managers.

CalSTRS statistics show that in 2017, the last year for which full statistics are available, the pension’s costs to manage its internal assets was $30 million.

External management is a different story. It cost $1.8 billion (including incentive fees) for outside managers to invest CalSTRS’s money.

Fifty-six percent of the plan’s assets are managed externally, 44% internally.

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No one on CalSTRS investment staff, from CalSTRS Chief Investment Officer Chris Ailman to asset class portfolio officers, thinks it’s realistic that the plan would ever be 100% internally managed and save almost $1.8 billion.

However, documents from the system’s investment committee meetings over the first half of 2019 and a video stream of the May 9 meeting, show that building internal management is a key goal in efforts to reap significant cost savings.

The effort for cost savings comes at a critical time for CalSTRS, the second-largest US retirement plan.

The plan is only 65.5% funded as of June 30, 2018, a number that is expected to drop after the plan posts its investment returns for this fiscal year at the end of next month. It has been a volatile year for pension plans primarily due to the ups and downs of the stock market. Few, if any, plans are expected to meet their anticipated rates of return.

CalSTRS’s expected rate of return each year is 7%, a rate some critics say is unrealistic. In any case, saving external fees by increasing internal management can give CalSTRS a better chance of meeting its returns projections, argue investment staffers.

“It’s imperative that we succeed,” CalSTRS Deputy CIO Scott Chan said at the May 9 meeting on efforts to increase external management.

CalSTRS staff memos indicate implementing external management on a much larger scale would span years. They also say that the pension plan will need to revise its structure, which is hindered by the fact that the retirement system is part of state government and can’t move quickly to hire specialized investment personnel.

“Internal investment management requires specialized skills to evaluate investment opportunities in a fast-paced environment,” said one May 9 investment staff memo. “Unlike fund investing with external managers or with [private equity] general partners, staff’s involvement includes every major decision on strategy, asset purchase, sale, renovation, as well as all leverage decisions.”

The memo says that CalSTRS will need to reinvent its recruitment approach of investment professionals to attract world-class talent. This, it said, would include partnering with external resources such as professional recruitment firms, along with building CalSTRS’s own human resources team.

“In addition, the ability to hire the right individuals also hinges on remaining competitive with overall compensation packages,” the memo says.

CalSTRS has made the largest progress in internal management in its $28.3 billion fixed income portfolio. Pension plan statistics show that 85% of the assets class is internally managed. CalSTRS’s largest asset group, the $119.5 billion global equity portfolio, is around 50% internally managed.

The plan also has a heavy concentration of direct-type investments in its $31.9 real estate portfolio. Separate accounts and joint ventures comprises 62% of the total portfolio, but CalSTRS pays fees to managers who ran the separate accounts or who are involved in the joint ventures.

Compounding the issue of increasing internal management of assets is that the largest group of fees paid to external managers in 2017 was to private equity managers. The CalSTRS statistics show that $521 million was paid in management fees and carry (profit sharing) with private equity managers.

Ailman has said in the past that it would be difficult and take years for CalSTRS to be able to run its own direct equity program, similar to what Canadian pension plans do. Instead, Ailman has advocated a first step is building CalSTRS’s private equity co-investment program, in which pension plans can invest alongside equity general partners, often with no fees or carry. Those efforts are currently underway.

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Tags: CalSTRS, Internal Management, Pension, Scott Chan