SEC shuts down $5 million adviser scam
Adviser sold bogus bonds to church members, friends.
The Securities and Exchange Commission entered a default judgment against DaRayl D. Davis, a self-styled “financial coach” who took $5 million from church members and their friends in a fraudulent bond scam.
From at least 2003 to 2017, Davis raised more than $5 million from approximately 30 people through the unregistered offer and sale of securities. He sold what he called “corporate bond notes” that guaranteed interest rates from 7% to 20%. Some offered a “bonus” of 5% to 8% if the investor held the note to maturity, the SEC complaint said. Fake promissory notes are a leading cause of investor complaints, according to the North American Securities Administrators Association.
Mr. Davis, a Maryland resident, was a registered representative and investment adviser from 2005 though 2008, according to the SEC complaint. He’s not currently registered with the SEC.
In recent years, Mr. Davis held financial planning seminars marketed as the “Smart Money Academy” and “The Smart Money Millionaire Experience,” the SEC complaint said. In 2009, he self-published what he has claimed to be a best-selling book about saving for retirement called “Economic Secrets of The New Retirement Environment.”
Some victims purchased the notes using money obtained by surrendering legitimate annuities investments because Mr. Davis assured them that the returns on the notes would offset fees or losses from surrendering the annuities, the complaint said. When one investor attempted to retrieve her money Mr. Davis told her that her principal had been invested in a “bond portfolio” through a phony company called Dimension Funds Advisors — presumably an alias designed to resemble Dimensional Fund Advisors.
In 2012, Mr. Davis began selling “multi-year guarantee bonds” or “multi-year interest guarantee accounts” that promised interest rates of 6% to 10%, with the potential for a supposed 5% to 20% “cash bonus” for making an initial deposit, according to the complaint. They were structured similarly to the corporate bond notes. Investors chose an initial one, two, or three year term, with higher guaranteed interest rates offered for longer terms. He often claimed his fictitious investments were backed by well-known insurance companies. They weren’t.
Mr. Davis took the money for his own use, including allocating about $1 million to repay investors who had requested money from their accounts that didn’t exist, the complaint said. Mr. Davis also spent nearly $500,000 of investors’ money renting a mansion in the Hollywood Hills — a house previously rented by various celebrities. In addition, Mr. Davis used investors’ money to, among other things, rent a house in Maryland, rent numerous high-end sports cars, join a luxury sporting club, and visit night clubs. Additionally, Mr. Davis used approximately $700,000 to pay his personal credit card bills.
At a hearing on March 26, 2018, Judge Amy J. St. Eve entered default judgment against Mr. Davis, held him in contempt for violating an earlier asset freeze and scheduled a hearing for May 10, 2018 to determine how to proceed with the remedies phase of the case.
Efforts to reach Mr. Davis or his attorney for this story were unsuccessful.
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