The Securities and Exchange Commission (the “SEC”) has filed securities fraud charges against Barry R. Bekkedam, of Hobe Sound, Florida. Bekkedam is the former owner, Chairman, and Chief Executive Officer of Ballamor Capital Management, LLC (“Ballamor”), a formerly SEC-registeredinvestment adviser located in Radnor, Pennsylvania.
The SEC’s complaint, filed in U.S. District Court for the Eastern District of Pennsylvania, alleges that from April through October 2009, Bekkedam fraudulently induced, or assisted in inducing, his advisory clients and others to invest approximately $100 million in a fund that purportedly purchased lawsuit settlements from now-convicted Ponzi-schemer Scott Rothstein. The settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein’s scheme collapsed in October 2009, and he is currently serving 50 years in federal custody.
The complaint alleges that, in early 2009, Bekkedam met George Levin, a Florida businessman, who was himself a Rothstein investor and had been raising capital from investors to purchase settlements from Rothstein since 2007. Levin’s investments with Rothstein were at risk if he could not find additional investors. In April 2009, Levin and Bekkedam formed a private fund called Banyon Income Fund, LP (the “Banyon Fund”) to enable Bekkedam to raise funds from clients and others to be invested exclusively in Rothstein’s settlements.
The SEC alleges that, when soliciting his advisory clients and other prospective investors to invest in the Banyon Fund, Bekkedam made material misrepresentations and omissions regarding the level of due diligence he and Ballamor had performed, including their access to information confirming the existence of the settlement funds, the authenticity of Rothstein’s investment program, and the overall safety of investing in the Rothstein settlements. At the time that Rothstein’s scheme collapsed, Banyon Fund investors had received approximately $2 million in interest payments, with their approximately $100 million principal investments lost in the Ponzi scheme.
The SEC’s complaint further alleges that Bekkedam also concealed from his advisory clients and other prospective investors the nature of his relationship with Levin and the clear conflicts of interest resulting from the financial arrangements between Levin and Bekkedam and his affiliates. Throughout 2009, Levin and Bekkedam engaged in a series of transactions designed to funnel money to Bekkedam and his related entities in exchange for Bekkedam’s solicitation of investors in the Fund. The transactions included Levin’s agreement to purchase approximately $3 million in municipal bonds from Bekkedam, Levin’s agreement to help Bekkedam restructure $10 million of his personal and business debt, Levin’s agreement to invest up to $5 million in Ballamor, and Levin’s purported investment of $5 million in a bank co-founded by Bekkedam with an agreement to invest up to an additional $13 million.
The complaint alleges that Bekkedam violated Section 17(a)(2) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and seeks a final judgment ordering a permanent injunction, disgorgement of ill-gotten gains together with prejudgment interest, and a civil penalty against Bekkedam.
The SEC’s investigation was conducted by Kelly L. Gibson and supervised by Brendan P. McGlynn, in the Philadelphia Regional Office. The SEC’s litigation is being handled by Christopher R. Kelly and supervised by G. Jeffrey Boujoukos. The investigation followed an examination conducted by Philadelphia Regional Office examination staff Andrew B. Green, Kevin P. Logue, William M. Lavin and Ly T. Nguyen, under the supervision of Frank A. Thomas.
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