SEC Charges Equipment Leasing Company and its Founder in Alleged $80 Million Fraud
The Securities and Exchange Commission has charged an equipment leasing company and its founder with defrauding investors in connection with sales of more than $80 million in promissory notes.
The Securities and Exchange Commission has charged an equipment leasing company and its founder with defrauding investors in connection with sales of more than $80 million in promissory notes.
According to the SEC’s complaint, between 2014 and 2017, Essex Capital Corporation and its founder, Ralph Iannelli, allegedly made a series of false and misleading statements and personal guarantees to registered investment advisers to encourage them to invest their clients’ money in a failing equipment leasing business.
Iannelli raised more than $80 million from approximately 70 promissory note investors who were promised a high rate of return – typically 8.5 percent per year.
The SEC claims that operational revenues from Essex’s leasing business comprised only a small fraction of its incoming cash flows. The majority of its funds came from promissory note investors and bank loans. For instance, between 2014 and 2016, approximately $107 million of Essex’s revenue came from investors and banks and only approximately $34.4 million came from equipment leasing income during that same time period.
Essex and Iannelli allegedly provided one investment adviser with fake financial statements that overstated Essex’s assets by more than $20 million. He is accused of telling another investment adviser that the company would assign equipment leases to its clients, when the same leases had already been pledged as collateral for bank loans.
The SEC’s complaint further alleges that as its finances deteriorated, Essex resorted to frequent Ponzi-like payments, paying interest and principal to existing investors with funds raised from newer investors.
At the same time, Iannelli allegedly paid himself millions of dollars in bonuses and siphoned millions of dollars out of the company through interest-free loans with no maturity date. The SEC claims that Iannelli personally owes the company in excess of $6.4 million.
In August 1974, the SEC filed a complaint against Iannelli, alleging that he violated the antifraud provisions of federal securities laws by purchasing more than 100,000 shares of stock for clients without their consent in order to manipulate the price of the stock.
Iannelli was barred from associating with any broker-dealer, investment company or investment adviser in August 1974 for allegedly purchasing more than 100,000 shares of stock for clients without their consent in order to manipulate the price of the stock. Less than two years later, he was convicted of criminal contempt for violating the 1974 permanent injunction to which he consented.
The SEC’s complaint, filed in a California federal court, charges Iannelli and Essex with various securities law violations. It seeks disgorgement of allegedly ill-gotten gains along with interest, monetary penalties, and permanent injunctions against Iannelli and Essex.
The SEC has also requested emergency relief against the defendants, including a preliminary injunction, an asset freeze, and the appointment of a receiver over Essex.
