The Securities and Exchange Commission charged New York residents Jason M. Wendt and Armando Costabile with the fraudulent offer and sale of at least $4.7 million of securities to approximately 234 investors through their companies, EarthSource Minerals International, LLC and Abundant Resource Development, LLLP between September 2014 and December 2019. The SEC also charged Florida resident Michael J. Palermo, EarthSource’s Chief Investment Officer, with the fraudulent offer and sale of an additional $501,906 of securities to 22 investors through Palermo’s company, Premier Minerals International, LLC, and the misappropriation of the majority of the investors’ money raised.
According to the SEC’s complaint, Wendt and Costabile falsely claimed EarthSource could pay investors returns of 10% per month by engaging in “diamond flipping” – purchasing diamonds in Liberia and exporting them for resale in the United States at significantly higher prices. As alleged, contrary to their representations, EarthSource actually lost money on the diamond flipping transactions, and Wendt and Costabile siphoned money from the program to pay for EarthSource’s unsuccessful mining operations. The complaint alleges that Wendt falsely claimed, in January 2016, that EarthSource had generated $200,000 per month from gold mining, when EarthSource’s total annual gold production in 2015 was less than $100,000.
The complaint also alleges that Palermo, in offering investments through Premier, promised investors quarterly profits of 20%, and falsely claimed investors’ funds would be used to purchase diamonds in Liberia for export and resale in Florida. According to the complaint, Palermo also induced purchases in a joint venture by falsely claiming that EarthSource had obtained financing that would allow mining production to commence at one of its sites when in fact no such financing existed. The complaint further alleges that Palermo misappropriated over $340,000 – most of the Premier investors’ funds – and used it for personal expenses and to make Ponzi-like payments to prior investors.
The SEC’s complaint, filed in federal court in Rochester, New York, charges Wendt, Costabile, EarthSource, Abundant, Palermo, and Premier with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The defendants have agreed to settle the charges against them and, without admitting or denying the allegations of the complaint, have consented to judgments enjoining them from violating the charged provisions, ordering Palermo to pay disgorgement of his allegedly ill-gotten gains of $340,005 plus prejudgment interest and a civil penalty of $125,000, and ordering Wendt and Costabile to pay civil penalties of $100,000 each. The settlements are subject to court approval.
The SEC’s investigation was conducted by Patricia A. Kuzma Trujillo and Jacquelyn D. King with the assistance of Julia C. Green, and was supervised by Kingdon Kase, Scott A. Thompson, and Kelly L. Gibson in the Philadelphia Regional Office. The litigation will be led by Ms. Green and supervised by Jennifer Chun Barry.