James C. Tao, an ex-financial adviser, has settled civil charges accusing him of bilking investors in a private equity fund. It was the US Securities and Exchange Commission that brought the Texas investment fraud charges against him.
Among the allegations was that Tao misappropriated investor money and made material misstatements in offering documents for the Presidio Venture Capital fund. Donna Boyd, Tao’s ex-partner, also settled SEC charges in this case.
The regulator’s complaint contends that the two of them set up the fund four years ago to invest in Houston-based technology startups. They raised about $860K.
At the time, the two of them ran the Houston branch of a registered investment advisory and brokerage firm, and it was this firm’s clients, among other contacts, that Tao and Boyd allegedly solicited when they set up the private equity fund. The SEC said that the two of them raised investor funds without the firm’s “knowledge or approval.” This is referred to as selling away.
The regulator believes that Tao misstated that investors’ money would be put in escrow and if $2.5M wasn’t raised then the money would be returned to the clients. The ex-financial adviser is accused of not adequately disclosing that the private equity fund was also putting money into companies that either he had a stake in or owned.
Also, Tao and Boyd are accused of acting in the capacity of unregistered brokers when they offered and sold the investments in PVC. Under the Securities Exchange Act of 1934’s Section 15(a), brokers must be associated with a broker that is registered or be registered with the SEC. Since the defendants were allegedly offering and selling the PVC investments outside the scope of their employment with the registered firm, and the two of them weren’t registered themselves, their ties with the broker-dealer did not cover the PVC interest sales.
Tao also is accused of using investor money to: apply for a loan so he could increase how much interest he had in the fund, pay for expenses that had nothing to do with how offering materials said that the funds were going to be used, and make Ponzi-like payments to an unhappy investor. He also allegedly disregarded restrictions around fund redemption when he bought out Boyd and a few investors using money from an early PVC investment.
Now, Boyd and Tao have consented to settle the regulators charges. Tao will pay almost $160K in disgorgement, almost $8K in interest, and a $150K penalty. Boyd will pay a $10K penalty. Neither of them are admitting to or denying the SEC allegations.
Texas Securities Fraud
Please contact our Houston securities lawyers if you suspect that your investment losses may be due to financial fraud. Our Texas broker fraud law firm has helped thousands of investors in recouping their losses. We are the largest securities law firm in the state and one of the biggest in the US solely concentrated on representing investors with securities cases against big Wall Street firms. Your first consultation is a complimentary, no obligation session.
The SEC Complaint (PDF)
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