SEC alleges attorney, two others sold $52.7 million in bogus PIPE investments

By Devika Patel

Knoxville, Tenn., Sept. 16 - The Securities and Exchange Commission charged an Irvine, Calif., attorney and two other promoters for conducting a $52.7 million Ponzi scheme in which they allegedly sold fraudulent PIPE investments.

The SEC alleges that the group promised unrealistic profits and misappropriated more than $20 million of investors' funds to function as their own personal piggy bank.

The SEC's complaint alleges that attorney Jeanne M. Rowzee along with James R. Halstead of Santa Ana, Calif., and Robert T. Harvey of Prosper, Texas, told investors that Rowzee was an experienced securities attorney who personally screened and selected each PIPE investment after thorough due diligence.

Contrary to these representations, they did not place investor funds in PIPE investments.

Rowzee, Halstead and Harvey instead used new investor funds to pay principal and returns to earlier investors and to finance their own personal endeavors such as trips to Las Vegas, property purchases and alimony payments.

"Investors must be wary of promoters, even securities attorneys or other purported 'experts' who offer investment opportunities with high returns but fail to disclose complete and verifiable information about the investment they're touting," the SEC's regional director of the Los Angeles regional office, Rosalind R. Tyson, said in a press release. "In this case, as alleged in our complaint, the so-called PIPE investments did not exist. The defendants raised millions of dollars from unsuspecting investors and simply used it to enrich themselves."

The complaint, filed in federal court in Santa Ana, Calif., alleges that from at least March 2004 through December 2006, the defendants sold the purported PIPE investments to investors, promising returns of 19% to 54% within 12 to 16 weeks.

The complaint also alleges that Harvey formed a California limited liability company, Harvest Income LLC, to pool investor funds to invest in the purported PIPE investments. The defendants allegedly solicited business clients and acquaintances and generated word-of-mouth referrals.

According to the complaint, Halstead misappropriated at least $10.4 million of investor funds to support an extravagant lifestyle that has included frequent trips to Las Vegas and three luxurious homes. He also used the funds to pay living expenses for his wife, children and others.

Rowzee misappropriated at least $5.6 million of investor funds to pay her home mortgage and credit card bills and to purchase property in Arizona, the complaint purports.

Harvey misappropriated at least $2 million of Harvest Income funds to pay his personal credit card bills and other expenses, including alimony payments to his ex-wife, according to the complaint. Harvey also allegedly paid himself approximately $2.3 million in purported "management fees."

The defendants are charged with securities fraud and with conducting an unregistered offering.

Rowzee and Harvey also are charged with investment adviser fraud and Halstead is charged with aiding and abetting violations.

The commission's complaint seeks permanent injunctions, disgorgement of ill-gotten gains and civil penalties against each defendant.

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