Friday, November 20, 2015

No. 128: SEC Files Securities Fraud Charges Against James Torchia

On November 10, 2015, the Securities and Exchange Commission (SEC) filed a civil complaint against James A. Torchia and five entities he controls. The SEC alleges securities fraud, including the operation of a Ponzi scheme. The SEC identifies two aspects of the alleged fraud. One is the marketing of unregistered promissory notes arising from subprime automobile loans. The other is the marketing of unregistered fractional interests in viatical and life settlements. (See SEC v. Torchia, U.S. District Court, Northern District of Georgia, Case No. 1:15-cv-3904.)

The Defendants
Torchia, a Georgia resident, is the lead defendant and controls the entities that are the other defendants. Georgia-based Credit Nation Capital LLC sold promissory notes arising from subprime automobile loans. Texas-based Credit Nation Acceptance LLC sold fractional interests in viatical and life settlements. Georgia-based Credit Nation Auto Sales LLC was a used automobile dealership that is now closed. Georgia-based American Motor Credit LLC was an entity through which Credit Nation Capital made subprime automobile loans. Nevada-based Spaghetti Junction LLC was a vehicle used to funnel money to Torchia and members of his family. All the defendants are represented by James Johnson of the Atlanta law firm of Knight Johnson LLC.

The Complaint
The complaint says Torchia, through Credit Nation Capital, raised tens of millions of dollars from investors who purchased unregistered promissory notes, most of which promised a 9 percent return. The notes were described as "100% asset backed" and "backed by hard assets dollar for dollar." The notes were promoted through newspaper and radio advertisements. Here is one of the radio advertisements:
Attention investors. My name is Bob Guess. I'm with Credit Nation and I'm here to help. Don't get blindsided by the next stock market correction. Remember the correction in 2008; some investors lost 40 to 50 percent of the money that they had in brokerage and retirement accounts. Well, history tends to repeat itself. It's not too late to lock in your gains and take the stock market risk out of your portfolio. If you need income, we have a blended asset investment that'll pay you nine percent annual return. Your investment is backed dollar for dollar with hard assets and is non-correlated to the stock market. For those who don't need additional income but are looking for growth, we have investments that have historically produced double-digit returns that are also non-correlated to the stock market. Give us a call at 1-800-542-9513, that's 1-800-542-9513. Don't gamble with your financial future. Call us today for an appointment. 1-800-542-9513.
The complaint consists of eight counts. There are three counts of securities fraud, one count of offering unregistered securities, and four counts of aiding, abetting, and causing violations of securities laws. The SEC asks for a temporary restraining order, preliminary and permanent injunctions, an accounting, disgorgement of ill-gotten gains, pre-judgment interest, civil penalties, an order freezing the defendants' assets, an order preventing defendants from destroying or concealing documents, and the appointment of a receiver.

Other Filings
On the day the complaint was filed, the SEC filed an emergency motion for a temporary restraining order, an asset freeze, and the appointment of a receiver. On that day the SEC also filed an affidavit from an SEC staff accountant who had scrutinized the defendants' documents.

The next day the SEC filed an amended emergency motion for a temporary restraining order, an asset freeze, and the appointment of a receiver. The amended emergency motion was based on the findings of the staff accountant.

General Observations
The Torchia case is still in its early stages. The extent to which Torchia allegedly engaged in the extensive commingling of funds among his entities is troublesome. At one point in the complaint, the SEC alleges that Torchia "has stolen investor money." I believe that the charges are serious, and that they border on criminal activity. The SEC has demanded a jury trial. I plan to report further as the case progresses.

Available Material
I am offering as a complimentary 39-page PDF the SEC complaint against Torchia and his five entities. E-mail and ask for the complaint in the case of SEC v. Torchia.