June 28, 2010 / 7:13 PM / 8 years ago

SEC accuses money manager of $106 mln Ponzi fraud

* Daniel Spitzer accused of Ponzi scheme

* $900,000 allegedly spent at Wynn Las Vegas Casino

By Jonathan Stempel

NEW YORK, June 28 (Reuters) - The U.S. Securities and Exchange Commission said it has filed civil fraud charges against and won a court order freezing the assets of a Virgin Islands money manager who ran a $105.9 million Ponzi scheme.

According to a complaint filed in federal court in Chicago, Daniel Spitzer raised the sum from about 400 investors who were told their money would be invested mainly in foreign currency.

Investors with Spitzer’s companies, including Kenzie Financial Management Inc, were told that Spitzer’s funds never lost money, and in one year generated a 184 percent return.

Instead, the SEC said Spitzer used only about $30 million for investments. It said he used $71.9 million to pay earlier investors, used additional sums to cover business expenses, and diverted some money to support an “extravagant lifestyle” that included more than $900,000 of cash expenses at the Wynn Las Vegas Casino between March 2006 and October 2009.

Spitzer, a 51-year-old U.S. citizen who lives in St Thomas, would conceal the scheme by issuing fake documents with inflated returns to mislead customers into believing their investments were profitable, the SEC said.

    “Daniel Spitzer ran an elaborate Ponzi scheme that he disguised by moving investor money through a complex network of foreign bank and brokerage accounts,” Merri Jo Gillette, director of the SEC regional office in Chicago, said in a statement. “He deceived investors into believing that he was using a sophisticated investment strategy that didn’t really exist.”

    A phone number for Spitzer in the Virgin Islands could not immediately be located. A lawyer for Spitzer in a case filed last month in a federal court in Philadelphia by some of his investors did not immediately return a call seeking comment.

    A spokeswoman for Wynn Resorts Ltd (WYNN.O), which operates Wynn Las Vegas, did not immediately return a call for comment.

    The SEC said Spitzer has since at least August 2009 avoided paying requested investor redemptions, and that his scheme is now “on the verge of collapse.”

    The lawsuit seeks the recovery of ill-gotten gains, civil penalties against Spitzer and five of his asset management companies, and other remedies.

    In a Ponzi scheme, funds from new investors are used to pay earlier investors. Dozens of such cases have been brought since Bernard Madoff was arrested in December 2008 for running what investigators have called a $65 billion Ponzi scheme.

    The case is SEC v. Spitzer et al, U.S. District Court, Northern District of Illinois, No. 10-03758. (Reporting by Jonathan Stempel; Editing by Tim Dobbyn)

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