Adviser's Ponzi scheme fed wife's baby boutique, SEC says

Neal Goyal used $11.4 million to fund lavish lifestyle, business investments, regulator alleges

May 28, 2014 @ 4:18 pm

By Lynne Marek

The Securities and Exchange Commission sued a Chicago investment adviser, claiming he accepted $11.4 million from 35 clients, but then used the money for personal spending, including funding his wife's baby boutique.

The SEC alleges in a lawsuit filed today in U.S. District Court for Northern Illinois that the adviser, Neal Goyal, and his firms, including Caldera Advisors LLC and Blue Horizon Asset Management LLC, operated in Ponzi scheme fashion, making payments to early investors with money from new investors. Those actions violate federal laws that prohibit fraudulent, deceptive and manipulative practices, the agency said.

Mr. Goyal, 33, raised money over the past eight years for four funds that he said invested in stocks, according to the lawsuit. While he said the funds “significantly outperformed the market, Goyal never invested the vast majority of the money he raised from investors, and the limited trading that Goyal did perform was unsuccessful and resulted in significant losses,” the lawsuit said. The agency also alleges Mr. Goyal sent investors “fictitious account statements grossly overstating his performance.”

“We've been cooperating with the SEC for the past two weeks, and we're going to continue to cooperate with the SEC,” said Howard Rosenburg, a Chicago attorney representing Mr. Goyal.

Instead of investing the money, Mr. Goyal allegedly funded his business; bought two homes, including one for $1.4 million; leased luxury cars; purchased expensive artwork, jewelry and vacations, and made investments in start-up companies, including his wife Marti's Urba Baby clothing boutique, which operated two retail locations.

An employee who answered the phone said one of stores closed today, and the company plans to expand its online business.

The couple was part of the Chicago social scene, posing for photos at elegant functions, such as an event to raise money for homeless animals that was captured in a photo by Modern Luxury's monthly social and cultural magazine CS.

Mr. Goyal first started raising money for his Blue Horizon funds in 2006, taking money from friends and family while he was in law school. He launched the Caldera fund in 2009 and also began offering consulting services, ostensibly to counsel emerging companies on raising capital, mergers and acquisitions.

He opened his Chicago office in 2010, and as of this month had eight employees, but that was “window dressing,” the SEC said. In reality, Mr. Goyal stopped trading by January 2009, after posting major losses almost immediately following the launch of the funds, the agency alleges.

He purported to charge 1% of assets under management and 20% of investment profits. The SEC this week won court approval for a permanent injunction to stop Mr. Goyal from doing business and for an order to freeze his assets. The agency also received authority to have Mr. Goyal return funds gained through the alleged fraud and pay civil penalties.

Lynne Marek is a reporter for sister publication Crain's Chicago Business.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Behind the scenes of InvestmentNews' Best Places to Work

Benefits and vacation policies are important for hiring top talent, but giving employees a sense of ownership in decision-making is among the most important qualities, editor Fred Gabriel says.

Latest news & opinion

Why we must create a more diverse and sustainable financial planning profession

CEO explains how, why a firm should commit to conscious inclusion.

Pope Francis wants financial advisers to work like fiduciaries

Vatican bulletin admonishes advisers who act against the best interests of their clients.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.

Waddell & Reed sees flurry of senior staff departures

Firm also experiences an almost 30% decline in number of brokers and advisers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print