The US Securities and Exchange Commission has charged Brett M. Bartlett, his father-in-law Scott A. Miller, and their companies for fraudulent securities offerings that raised at least $20.5 million, some of which it says Bartlett and Miller misused for personal expenses.
According to the SEC’s complaint, from at least June 2018 to May 2020, Bartlett and Miller raised funds from more than 1,000 investors across the US by selling promissory notes, stock, and fraudulent gold contracts through their companies, including Dynasty Toys Inc., The 7M eGroup Corp., Concept Management Company LLC, and Dynasty Inc.
Divine intervention?
As the complaint from the SEC alleges, when soliciting investors, many of them from a large church in central Illinois, Bartlett frequently invoked his Christian faith and attributed his alleged success to divine intervention to win investor trust.
The complaint further alleges that, to stave off demand for cash pay-outs from their unsuccessful business ventures, Bartlett and Miller misled investors, made more than $11 million in Ponzi-like payments, and sent to investors $21 million in bad checks that bounced due to insufficient funds.
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In addition, Bartlett and Miller misappropriated more than $1.2 million for personal use, including vacations, entertainment, and payments for a luxury rental home.
“As we allege in our complaint, Bartlett and Miller preyed on church members, and while the two proclaimed their faith, they practiced lies and deception,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “This action demonstrates our continued commitment to protecting retail investors, including victims of affinity fraud.”
The SEC’s complaint, filed in federal court in the Central District of California, charges the defendants with violating the antifraud provisions of the federal securities laws. The complaint also charges the defendants, with the exception of 7Me, with violating the registration provisions of the Securities Act. The SEC says it is seeking permanent injunctions, including conduct-based injunctions, disgorgement with prejudgment interest, civil penalties, and officer and director bars.
In a parallel investigation, the U.S. Attorney’s Office for the Central District of Illinois announced criminal charges against Bartlett, 7Me, and Dynasty Toys.
Members of the public are reminded that an indictment is merely an accusation; the defendants are presumed innocent unless proven guilty.
What is affinity fraud?
In the wake of this case, the SEC has also issued an alert to investors about affinity fraud. This is a type of fraud favoured by con artists which is tailored to a specific group. Typically the fraudster pretends to be a member of that group and to embrace its value system. One of the most famous example was Bernie Madoff, who targeted the wealthy east coast US Jewish community.
Successful fraudsters will often seek to enlist the help or approval of senior and trusted members of the community at an early stage. While these people may not realise they are facilitating a fraud, they are often useful in helping the fraudster to raise money.
Another recent example prosecuted in the US involved a former Marine who was selling a ‘hedge fund’ to fellow veterans. Affinity fraud tends to be most prevalent in the US, especially in areas where there are a large number of independent church congregations. Other favoured targets include specific ethnic groups and the elderly.
