The Securities and Exchange Commission announced that on June 3, 2020 the United States District Court for the Central District of California entered a preliminary injunction and orders freezing assets and imposing other relief against California-registered investment adviser Paul Horton Smith, Sr. and his entities in connection with a Ponzi scheme targeting senior citizens.
The SEC’s complaint, filed on May 19, alleges that from at least January 2018 through May 2020, Smith offered and sold securities in his company, Northstar Communications, LLC, and used his investment advisory firm, eGate, LLC, and insurance and estate planning company, Planning Services, Inc., to market the securities. As alleged, Smith and Northstar guaranteed investors he would generate annual interest payments based on investments in specified products, but failed to invest the funds raised as promised and instead used new investor funds to pay investor returns in a Ponzi-like fashion. According to the complaint, Northstar raised more than $5.6 million from at least 35 investors and paid $5.2 million to those investors as interest payments or principal returned. On May 20, the court granted a temporary restraining order and an asset freeze, ordered an accounting and appointed a temporary receiver over the entities behind the alleged scheme. In its June 3 order, the court extended the receivership until June 11.
The complaint charges the defendants 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, and Smith and eGate with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks permanent injunctions, return of ill-gotten gains plus interest, and civil penalties.
The SEC’s investigation was led by David S. Brown, with assistance from Dora Zaldivar, and was supervised by Finola H. Manvelian in the SEC’s Los Angeles Regional Office. The litigation will be led by John B. Bulgozdy and supervised by Amy Jane Longo.
The SEC’s Office of Investor Education and Advocacy has issued investor alerts on frauds targeting seniors and Ponzi scheme red flags. Additional information is available on Investor.gov and SEC.gov. Investors in Northstar Communications who believe they may be a victim should contact the SEC through www.SEC.gov/tcr and reference SEC v. Paul Horton Smith, Sr., et al. Civil Action No. ED CV 20-1056 PA (SHKx) (C.D. Cal.).