The Securities and Exchange Commission filed a complaint last week against Michael Enea, a Wisconsin business owner. Authorities say that he operated a Ponzi scheme bilking 18 investors out of $2.1 million. Although accused of investment fraud for selling unregistered securities, the SEC says he wasn’t licensed as an investment advisor or stockbroker. In fact, the company he was affiliated with was dissolved by the State of Wisconsin in 2011.
According to the complaint, Enea began a business called Credit Card Equipment Plus in the 1990’s. The company sold services to merchants who utilized credit card processing equipment.
In 2006, Enea decided to increase his income by purchasing credit card portfolios. A portfolio consists of a group of merchants who utilizes a particular processing company. The SEC says that Enea lacked the capital to purchase these portfolios so he sought investors to raise the necessary funds. In total, the government claims that Enea raised $2.1 million. Unfortunately, the government says none of the money was invested as promised.
Prosecutors say that $1.3 million went to pay back previous investors. This is typical of Ponzi schemes where new money is used to pay off old investors and keep the scheme alive. Ultimately, the scheme collapses when the amount of new money coming in can’t keep pace with the promises made to existing investors.
So where did the rest of the money go?
Prosecutors say it went into Enea’s pocket. $66,000 went for hunting lodge and related expenses, $26,000 for entertainment, $64,000 for mortgage payments on his own house and $55,000 for automobiles. The SEC says “virtually all of the investor funds have been dissipated.”
If the allegations against Enea are true, we are not surprised his scheme collapsed in just a few years. Investors claim they were promised a 20 to 50% return on their money. With promises like that, the amount of new money necessary to pay off old investors becomes impossible to raise.
Investors will have a tough time recovering their money. By purchasing their investment directly from Enea, there is no brokerage firm with deep pockets available to investors.
Promises of easy money are almost never true. If there were such huge profits in credit card portfolios, the credit card companies themselves would be purchasing them. We believe the promise of above average returns lured many investors to Enea’s phony credit card portfolio scheme.
The charges against Enea are civil. Because they were just filed, we don’t know Enea’s position and whether he will fight. It is also too soon to know whether he will also be criminally prosecuted.
About the author. Brian Mahany is an attorney in Milwaukee, Wisconsin. He and his firm, Mahany & Ertl, represent victims of Ponzi schemes and other investment frauds nationwide. If you have lost $100,000 or more because of an investment fraud, accounting malpractice or other financial fraud, contact Brian directly at or by telephone at (414) 704-6731. Most cases can be handled on a contingent fee basis.
Brian and his team of securities fraud lawyers have handled cases from Maine to California.
Post by Brian Mahany, Esq.