Stoltmann Law Offices is a Chicago-based securities and investment fraud law firm that offers nationwide representation to victims of Ponzi schemes and other securities frauds. We are currently investigating allegations made by the United States Securities and Exchange Commission (SEC) and the US Attorney for the Southern District of New York that contend the Belize Infrastructure Fund I, LLC was a Ponzi scheme. According to published reports, Minish “Joe” Hede and Kevin Graetz sold $9.6 million worth of promissory notes to their clients, many of whom were customers of their brokerage/dealer firm Paulson Investment Company.
According to the complaint filed by the SEC, Brent Borland, the principal of the Belize Infrastructure Fund who is also under indictment, approached Paulson Investment Company to act as “placement agent” for this fund. After the sales pitch, Paulson declined to act as the placement agent and disapproved of the investment. Whether Paulson Investment Company approved of the deal or not, meant nothing to Hede and Graetz who went on to sell almost $10 million worth of notes issued by the bogus company to at least 21 Paulson clients. In so doing, Graetz and Hede violated numerous FINRA Rules and SEC rules and regulations by selling a fund that was not approved of by their broker dealer. The SEC complaint also alleged that Hede and Graetz received hundreds of thousands of dollars in illicit commissions from selling notes issued by the Belize Infrastructure Fund.
Paulson Investment Company can still be held liable for the conduct of the firm’s registered brokers, Hede and Graetz. First, even though Paulson Investment did not formally approve of these sales, Hede and Graetz were still registered with the firm as brokers when these sales occurred so that means Paulson had an obligation to supervise their activities pursuant to FINRA Rule 3010. Additionally, “red-flags” that brokers may be “selling away” increase that responsibility. Certainly, having sold almost $10 million in this fund to 21 Paulson clients means there was, at a minimum: 1) a paper trail that they were selling these notes; 2) communications via email discussing the Belize fund; 3) transactional records, including the sale of securities in the clients’ legitimate Paulson accounts in order to fund the Belize Fund investments; and 4) client meetings. Furthermore, brokers with numerous disclosures on their CRD Report require firms to put those advisors on “heightened supervision.” According to his FINRA BrokerCheck Report, Graetz had numerous tax liens and customer complaints on his record before he started selling the Belize Fund to his clients. Paulson Investment Company should have had him under a supervisory microscope. Instead, as is typical at brokerage firms like Paulson, the company invests minimally in its compliance and supervisory structure and brokers like Graetz and Hede end up selling firm clients almost $10 million in a Ponzi scheme.