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SEC accuses trio of Ponzi scheme

The agency alleges an Irvine lawyer and ex-partners misused investors' money.

September 16, 2008|Kim Christensen | Times Staff Writer

Federal securities regulators sued Irvine lawyer Jeanne M. Rowzee and two former partners Monday, accusing them of a scheme to use at least $20 million of investors' money "as their own personal piggy bank."

In its civil complaint, the Securities and Exchange Commission accused Rowzee, Santa Ana insurance salesman James R. Halstead and Texas venture capitalist Robert T. Harvey of taking in $52.7 million from more than 150 investors.

The trio had promised to put the money in securities known as private investment in public equity, or PIPEs, which they said would return as much as 54% in 12 to 16 weeks, according to the SEC's lawsuit, which was filed in U.S. District Court in Santa Ana.

"Instead, the defendants engaged in a Ponzi scheme, used investor funds to pay off other investors and misappropriated investor funds for their own personal use," read the complaint, which alleges fraud and other securities violations.

The SEC alleged that Halstead took at least $10.4 million of investors' money for a lavish lifestyle that included multimillion-dollar homes in Las Vegas and for living expenses for himself, his family and others.

Rowzee spent $5.6 million on her mortgage, credit card bills and Arizona real estate, and Harvey used at least $2 million to pay credit card bills and other expenses, including alimony payments to his former wife, the agency alleged.

Halstead did not return phone messages Monday. Rowzee, who does not have a lawyer in the SEC case, could not be reached for comment.

Harvey's lawyer, William M. Hensley, said his client "has shown good faith throughout in dealing with the investors and the SEC." He declined to comment further.

The SEC action follows federal criminal charges filed in recent weeks against Halstead, 61, and Rowzee, 49, as well as a slew of civil lawsuits against them and Harvey, 61.

Many companies use PIPE investments to raise capital for growth or acquisitions, with investors typically buying stock below market price and selling it at a profit. Prosecutors and investor lawsuits say the trio failed to invest any of the money, though they paid much of it to early investors.

Rowzee was charged in June with conspiracy and securities fraud. She struck a plea agreement, which was filed under seal, and is free on $40,000 bond, according to court records. She also has agreed to pay $66 million in damages stemming from civil suits.

Halstead, who was indicted last week on federal wire fraud, mail fraud and money-laundering charges, is free pending arraignment Sept. 22. The 16 felony counts came a week after a federal judge ordered him to pay investors more than $66 million in civil lawsuit damages.

He and Rowzee met in the early 1990s when she defended him on charges that he and another man defrauded investors of more than $1 million in a scheme to sell crude oil and German bank shares. He pleaded guilty to five felony counts and was put on probation, court records show.

Harvey has not been charged in the alleged criminal PIPEs scheme. But in 1986 he was sentenced to 18 months in federal prison after a jury convicted him and three other members of a New York commodities-trading firm of defrauding 1,200 investors of $11 million through misleading promotions and high-pressure sales tactics.

Although he denied wrongdoing in the alleged PIPEs scheme, Harvey earlier agreed to repay $4 million to about 30 investors, including wealthy Orange County developers and retirees living on fixed incomes.


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