The Securities and Exchange Commission (SEC) charged the founder of New York based AIC Capital Group, Fredrick D. Scott, with defrauding his investors while simultaneously grossly misrepresenting the amount of assets under his control.

According to the complaint filed by the SEC Scott registered his company AIC Capital Group as an investment advisor. Once registered Scott then repeatedly touted the firm’s registration under the Securities laws and proceeded from one scheme to another to defraud both small businesses and individual investors. One variation of Scott’s scheme was the so-called advanced money scheme. Under this scheme Scott promised investors that AIC would provide multimillion dollar loans to people seeking capital. Investors were told that in order to make that happen they needed to advance a small portion of the loan to AIC, which was supposed to turn around and send the entire amount back to the investors. However, Scott would simply keep the money and had no intention of refunding it or making good on the loan proposed.

Another scheme perpetrated by Scott involved offering investors the opportunity to make a bridge loan. Under this plan investors would fund a portion of a loan to a third party entity, while Scott through AIC was supposed to fund the balance. In exchange the investors were told that they would receive a substantial return on their initial investment. As with all his schemes, Scott, would simply keep the money and no investments were actually made.

“Scott told brazen lies about the value of ACI’s assets under management and its ability to deliver huge returns on various investments. Our examination and enforcement staff aggressively pursue investment advisers who flout the registration provisions of the securities laws for their personal gain, especially those who attempt to cover up their misdeeds by flat-out lying to our examiners.” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The US Attorney’s Office for the Eastern District of New York announced, in a parallel action that Scott had plead guilty to criminal charges. Included in those charges were an admission of making false statements to the SEC. Scott confessed to misleading investigators from the SEC who were investigating whether Scott and AIC had accepted loans from investors. The investigators soon referred the matter to criminal authorities.

Scott falsely told investors that AIC had over $3.7 billion in assets under management to bolster the firm’s credibility. Offering investors once in a life time opportunites for return on investment, Scott solicited funds from a variety of investors with the lure of high rates of returns. He has made no returns on investment and stole the money invested.  Much of the money was illegally spent on Scott’s personal lifestyle which included private school tuition for his children, travel and hotels, and several thousand dollars in dental bills.

The SEC’s complaint charges Scott with violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 207 of the Investment Advisers Act for filing a false Form ADV, and aiding and abetting ACI’s improper registration in violation of Section 203A of the Advisers Act.

There is an old adage, if it is too good to be true it probably is. When investment advisors or companies offer the ability to receive huge returns with very little to substantiate what they are offering, it should be a red flag to any investor. Doing the right amount of diligence and knowing where your money is going is paramount in protecting your interests and ensuring that your hard earned money doesn’t become somebodies root canal.