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June 6, 2013 SEC Fraud

Lengthy List of Securities Fraud Charges Result in a 17 Year Sentence for Defendant

On April 26, 2013, following a litany of charges brought by the Securities and Exchange Commission (“SEC”), a Massachusetts man was sentenced to 17 years in federal prison by United States District Judge Denise J. Casper.

Arnett L. Waters, a former investment advisor and principal broker-dealer, plead guilty to seven counts of securities fraud, six counts of mail fraud, two counts of money laundering, and one count of obstruction of justice on November 29, 2012. Waters also pleaded guilty to two counts of criminal contempt on Oct. 2, 2012. In addition to the prison term, Waters will serve three years of supervised probation upon his release and pay over $9 million in restitution for stealing investor funds.

Walters Pleads Guilty to Securities Fraud

From 2007 through 2012, Walters admittedly masterminded multiple securities fraud schemes that defrauded his customers of millions of dollars. The SEC filed an emergency enforcement action against Walters in 2012, alleging he used two of his own companies as a means to misappropriate investor funds, then spent the money on business and personal expenses. The companies, broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC, were used as a rouse to initially lure investors. Waters then peddled bogus investment-related partnerships to his investors, making each deal appear legitimate.

According to the SEC, Walters defrauded 13 investors of at least $839,000 by selling units of fictitious investment partnerships. Walters continually assured his investors that their money was in good hands. He was able to appease them by saying their investments had generated a substantial amount of profit, which would be paid out “in the near future.” Among the investors who were scammed was Walters’ own church. The church allegedly placed a $500,000 investment with Walters in March 2012. He guaranteed the church that its money would be invested in a high-return portfolio of securities. In reality, Walters turned around and misappropriated the money only days after receiving it from the church.

Additional Securities Fraud

Walters also admitted to defrauding investors of approximately $7.8 million in an elaborate Ponzi scheme. He fraudulently obtained money from investors by selling rare coins at prices that were inflated by up to 600 percent. Once purchased, Walters convinced his investors to return the coins to him, promising to sell them and turn a profit. Instead, Walters kept the coins for himself. In fact, Waters was able to convince one investor, who had already spent over $7 million to purchase coins, to pay an additional fee of over half-a-million dollars for the sale and storage of the rare coins.

Waters also plead guilty to the SEC’s allegations that he lied on numerous occasions to SEC program investigators and to members of the Financial Industry Regulatory Authority (“FINRA”). Specifically, in April 2012, Waters was found to be providing false information during an interview with SEC staff as part of the examination into his securities business. During that interview, Waters told examiners numerous lies, including that he had no investors in relation to his investment partnerships. Authorities claim Walters lied in an attempt to cover his tracks, concealing the fact he had misappropriated investor money in a securities fraud scheme. Walters was charged with obstruction of justice for providing false information to SEC officials.

“The personal nature of this fraud, the effort and calculation necessary to carry it out, and the defendant’s utter disregard for his victims and the law makes this one of the most serious white-collar cases in Massachusetts in recent memory,” said United States Attorney Carmen M. Ortiz.

“This crime, while not violent, had a profound and direct impact on the lives of victims who lost life savings, retirement money, funds for college educations, and funds meant for the benefit of the defendant’s own church.”

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