Securities Law Blog

A temporary restraining order and asset freeze has been issued against Minnesota-based investment advisor Renee Marie Brown, and Investors Income Fund X, LLC. On April 8, 2010 the Securities and Exchange Commission (SEC) alleged that Ms. Brown, the president of the Real Estate Investment Securities Association (REISA), misappropriated advisory clients’ money to the tune of $1.1 million.

According to the SEC complaint, from July 2009 until March 2010, Ms. Brown raised the $1.1 million by allegedly scamming six investors into transferring their money into Fund X. Ms. Brown allegedly told investors that Fund X was a legitimate and successful investment opportunity, and promised clients a fixed annual return of 8% or 9%. She allegedly would distribute bogus returns to investors to further facilitate the fund’s illusion of success.

The misappropriated funds allegedly went towards Ms. Brown’s purchase of a condominium for herself and to build-out office space for her new business.

According to the SEC, Ms. Brown has several investment adviser affiliations. Until about a month ago, Ms. Brown was a registered representative affiliated with Capital Quest Securities Inc. She had recently started her own investment adviser business, Aaria Capital Inc. and was one of the founders of due-diligence firm FactRight LLC.

Ms. Brown was also a founder and registered investment advisor with Wildwood Wealth Management LLC. It was during her time at Wildwood that Ms. Brown allegedly opened the unregistered Fund X and began competing for clients with her employer. According to the SEC complaint, Ms. Brown “either discreetly convinced Wildwood clients to withdraw their money from Wildwood and invest with the fund or forged a client’s signature to facilitate the fund’s transfer.”

Following a December 2009 guilty verdict, Minnesota businessman Tom Petters was sentenced in the U.S. District Court in St. Paul, Minnesota on April 8, 2010. Petters received 50 years in prison for his alleged role in the $3.65 billion Ponzi scheme run through Petters Co. Inc.

Back in December 2009, Petters was found guilty of 20 counts of wire fraud, mail fraud, conspiracy and money laundering. During the trial he testified that we was unaware that his close associates were running a Ponzi scheme through the company and only became aware when federal agents raided his Minnetonka headquarters in 2008.

Prosecutors alleged that the scheme worked by using fraudulent documents such as purchase orders and bank statements forged by Petters Co. Inc. Vice Presidents Deanna Coleman and Bob White to trick investors into thinking they were financing purchases of TVs and other electronic goods that would be resold to discount retailers such as Sam’s Club, Costco and BJ’s Wholesale Club. The sales allegedly never took place. Instead, the funds were allegedly used to make payments to other investors, fund Petters’ other businesses and finance his extravagant lifestyle.

The massive fraud, which the government expects has affected more than 500 victims, could have earned Petters the statutory maximum of 335 years. Despite the defense’s attempt to argue for a 4 to 12 year sentence, Petters, 52, is expected to spend the rest of his life behind bars.

At the sentencing hearing, Petters apologized to family, friends, co-workers and others who had been hurt but did not concede guilt. “Every day, I am filled with pain and anguish for all the lives that have been destroyed and touched by this episode,” Petters said.

Petters maintains his innocence and plans to appeal the conviction.