Turkish Bond Scam Funded Cryogenics, Porn, SEC Says (Update1)
March 10, 2010, 3:48 PM EST(Adds defendants, claims starting in second paragraph.)
By David Scheer
March 10 (Bloomberg) -- Executives at an Illinois estate- planning firm raised more than $20 million for Turkish Eurobond investments, while diverting clients’ money for a stamp collection, Internet pornography and cryogenically frozen umbilical cords, U.S. regulators said.
USA Retirement Management Services, which also has offices in California, and managing partners Francois Durmaz and Robert Pribilski were sued by the Securities and Exchange Commission today for operating a Ponzi scheme since 2005. A federal judge in Los Angeles froze their assets, the SEC said.
“Durmaz and Pribilski used estate planning seminars as a means to elicit investor trust and lure retirees,” said Rosalind Tyson, director of the SEC’s Los Angeles office, in a statement. Meetings were held in country clubs and restaurants.
At least 120 investors agreed to buy promissory notes guaranteed to generate 8 percent to 11 percent annual returns from investments in Turkish bonds, the SEC said. Durmaz, 39, and Pribilski, 51, also raised at least $14 million through a variety of channels since 2006, the agency said. They allegedly sent some funds to bank accounts in Turkey and spent money on luxury cars, housing and vacations.
The stamp collection belonged to Durmaz, according to the SEC complaint. The agency didn’t include additional information on the preserved umbilical cords.
A call to USA Retirement Management’s Los Angeles office was forwarded to a woman who identified herself as Mary and declined to comment. An Internet phone directory had no listings for Durmaz in Los Angeles and Streamwood, Illinois, or for Pribilski in Lisle, Illinois, where the SEC said they reside.
New Participants
Ponzi schemes typically rely on money from new participants to pay profits to earlier investors. Since the frauds rely on new clients, rather than investment returns, they tend to collapse when funding dries up.
Because most of the promissory notes had five-year terms, investors’ principal hasn’t come due, the SEC said in its complaint. Returns investors have received were either paid from their own money or from new investors, the agency said.
At the end of 2009, only $900,000 of the funds raised by selling notes remained in accounts controlled by the defendants, the SEC said. It wants the firm and executives to pay unspecified fines and forfeit profits.
--Editors: Gregory Mott, Steve Geimann
To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.
To contact the editor responsible for this story: Alec D.B. McCabe at amccabe@bloomberg.net.
