A Ponzi in Miami Targeted Retirees, SEC Says

Phil Donnahue Williamson allegedly used money he raised for the Sterling Investment Fund, which purportedly invested in mortgages and properties in Florida and Georgia, for his own expenses, according to the Securities and Exchange Commission (SEC).

Many of Williamson’s investors were public sector retirees, including teachers and law enforcement officers, who sought safe investments for their retirement savings. Williamson promised annual returns of 8% to 12% and assured his investors their principal was not at risk. But instead of investing their money, he used most of the fund assets to pay personal expenses and make supposed returns to investors. Williamson created fictitious valuations that were sent to investors.

Williamson met investors in several ways: through referrals from a former coworker; as former clients; through other investors; or after investors approached him after hearing him speak at financial seminars hosted by various churches. Williamson did not tell investors he would charge a fee for his services, and investors did not know how he would be paid, if at all, for his services.

According to the SEC, the same day a retired Miami-Dade County school teacher who is also a church pastor invested $125,000 in the fund, Williamson transferred $10,000 to the Sterling Financial account that he used as a personal bank account, and used the money to pay a credit card bill, school tuition for his children and make a car payment to BMW, among other personal expenditures. Williamson later paid $24,400 to other investors in the fund as so-called distributions, and transferred another $24,000 to the Sterling Financial account to pay other personal expenses.

Next: The fund was most likely used as a Ponzi setup from the start.  

Another investor, a retired grocery store manager who has since returned to work after losing his retirement savings in Williamson’s scheme, invested $85,000 in the Sterling Fund. Within days, Williamson transferred $32,000 to the Sterling Financial account to pay for personal expenses, including more than $6,000 in credit card payments. Over the next few months, with no apparent investment income to the Sterling Fund, Williamson paid at least $69,000 to investors as purported distributions.

According to bank records, the Sterling Fund devolved into a Ponzi scheme almost immediately because Williamson did not make investments to generate returns other than buying an interest in Allied Mortgage Investment Fund, purported by Williamson to be a friends and family investment vehicle that invested in mortgages in Florida.

Many investors began asking questions when their so-called returns dwindled or even disappeared. Some investors were curious about the Sterling Fund’s underlying investments and became suspicious when Williamson could not provide a list of properties in which the fund invested. Others became concerned when they asked Williamson for an early distribution and were told the money was unavailable.

As the scheme unraveled, Williamson moved money among 19 bank accounts to continue paying some investors and quell their concerns.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Williamson, who has agreed to settle the SEC’s charges and is liable for $748,050.01 in disgorgement. He also agreed to be permanently prevented from violating the antifraud provisions of the Investment Advisers Act of 1940, including misleading clients or prospective clients about investment strategies, the use of client funds, or his qualifications to advise clients. The settlement is subject to court approval.

“We allege that Williamson lured retired teachers, law enforcement officers, and others into believing that the Sterling Investment Fund was a safe investment generating significant returns,” says Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Investors entrusted him with their retirement savings, and he spent it as his own money.”

The SEC complaint, filed in U.S. District Court for the Southern District of Florida, can be read here.