Case # 17CF0692
Date: April 10, 2017
CO-DEFENDANTS ENGAGING IN UNLICENSED BROKER DEALER ACTIVITY ARRAIGNED FOR DEFRAUDING INVESTORS OUT OF MORE THAN $200,000 IN AN INVESTMENT BOILER ROOM SCHEME
SANTA ANA, Calif. – Defendants not licensed to effectuate trades in securities were arraigned last week for defrauding investors and stealing more than $200,000 in a securities scheme involving boiler room high-pressured sales tactics. Kevin David Grace, 51, Long Beach, was charged on March 20, 2017, with 12 felony counts of using untrue statements in the purchase or sale of a security over $100,000, five felony counts of acting as a broker-dealer without certification, and one felony count of use of a device or scheme to defraud, with sentencing enhancements for aggravated white collar crime over $100,000, Property loss over $200,000, and property damage or loss over $65,000. If convicted, Grace faces a maximum sentence of 24 years in state prison and is scheduled for a pre-trial hearing on April 26, 2017, at 8:30 a.m. in Department C-55, Central Justice Center, Santa Ana.
Co-defendant Madelynn Renee Jones, 58, Anaheim, is charged with 14 felony counts of using untrue statements in the purchase or sale of a security over $100,000, eight felony counts of acting as a broker-dealer without certification, and one felony count of use of a device or scheme to defraud, with sentencing enhancements for aggravated white collar crime over $500,000, aggravated white collar crime over $100,000, property loss over $200,000, and property damage or loss over $65,000. If convicted, Jones faces a maximum sentence of 31 years in state prison and is scheduled for a pre-trial hearing on April 26, 2017, at 8:30 a.m. in Department C-55, Central Justice Center, Santa Ana.
Facts of the Case
At the time of the crime, Grace is accused of being listed as the president and Jones is accused of being listed as the treasurer of Neoteric Energy, Inc. (NEOTERIC), a fictitious energy company. The defendants are accused of not possessing the required certifications to act as brokers/dealers of securities in California and for engaging in Securities Fraud. Securities Fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws.
Between May 2013 and April 2014, the defendants are accused of defrauding more than $200,000 from five clients by convincing them to invest in NEOTERIC without disclosing material facts as required by law, including Grace’s prior felony convictions and Desist and Refrain Orders received from other agencies and using investor money for personal use. Furthermore, Grace and Jones are accused of making material, misrepresentations by misrepresenting the commissions being paid to Jones, NEOTERIC’s distribution rights and company affiliation.
Jones is further accused of calling several victims multiple times and convincing them to invest additional money in NEOTERIC, which is known as reloading. From December 2011 through February 2015, Jones is also accused of soliciting over $300,000 from investors in other securities offerings without being licensed as a broker-dealer in violation of the securities laws and of stealing money from an elder.
This case was investigated by the Orange County District Attorney (OCDA) Bureau of Investigations after receiving a referral from the California Department of Business Oversight (CDBO). Other agencies, including the Arizona Corporation Commission, CDBO, Minnesota Department of Commerce, Washington State Department of Financial Institutions and the United States Securities and Exchange Commission, investigated this matter in an administrative and/or civil capacity previously or concurrently with the OCDA’s investigation, with some issuing Desist and Refrain Orders to Neoteric and the defendants. Defendant Grace was already in custody on another criminal case and Jones was arrested on March 24, 2017, by the Anaheim Police Department.
District Attorney Tips on How to Avoid Becoming an Investment Fraud Victim
When making an investment decision, it is important to use common sense and remember:
- If it looks too good to be true, it probably is.
- You should always know what you are signing.
- You don’t get something for nothing.
- If you aren’t sure about the investment, talk to a qualified, independent professional
When listening to someone about a great investment opportunity, ask yourself:
- Why are they offering this to me? Why can’t they get the money from the bank?
- Why are they offering me such a great deal when they can get money cheaper in other ways?
- Can I afford the higher risk for this promise of a higher return?
- Why have other brokers/investors/businesses passed on this deal?
- Has the promoter provided professional references, not including other investors with a vested interest, for the promoter and his investment?
Before investing, always check with the Department of Business Oversight (www.dbo.ca.gov) to find out if the investment has been qualified and the promoters are properly licensed to offer securities. Never turn over your life’s “nest egg” without first discussing it with a qualified, independent professional.
Deputy District Attorney Michelle Lipton of the Major Fraud Unit is prosecuting this case.