San Antonio First Responders Among Many Who Fell Prey To Investment Scam
Investing in 30-month secured promissory notes with 10-12% return on investment paid out quarterly sounds like a good, safe investment, especially when the first several quarters, checks arrive as promised. Why not keep investing? From 2013 to 2019, Victor Lee Farias told investors that Integrity Aviation and Leasing “purchased aircraft engines and other aviation assets that would be leased or sold to major airlines….” SEC July 2020 Complaint 88 investors in five states invested over $14 million in Farrias’ fraudulent investment scheme. Unfortunately, several investors were San Antonio first responders.
What Could Possibly Go Wrong?
- Assets unsecured. Not only did Farias take no steps to file the paperwork with the State of Texas to secure assets, he also pledged the company’s assets to a separate company he owned in 2015. Nevertheless, Farias continued to rake in $10 million of investments after he pledged assets to his other company.
- No aircraft engines. From 2015 to 2019, Integrity Aviation failed to purchase even one aircraft engine. While a few parts were bought and sold, the revenue generated from those transactions was minimal.
- Ponzi scheme. By spring of 2018, new investor money dried up. Quarterly payments to investors had been substantially derived from new investor money.
- Excuses. Excuses. To continue perpetrating his investment fraud, Farias made the brave move to hold an in-person investor meeting. “At the meeting, Farias lied to investors about a meritless lawsuit that he claimed had frozen IAL’s accounts. In fact, no such asset or account freeze had occurred.” SEC July 2020 Complaint
- The IPO Lie. Farias told at least one investor that he had filed with the SEC for an initial public offering (IPO) of IAL’s stock. No filing was made.
Where’s The Money?
As with most investment scams, when investor money runs dry, the investment fraud comes to light. But where was the $14 million? $6.5 million was paid to newer investors in Ponzi scheme payments. Farias invested $2.7 million in a friend’s gas station business. $1 million was paid out in unauthorized sales commissions. The investor agreement did not authorize sales commissions on securing new investors. Farias kept $2.4 million for his own personal enjoyment, which included travelling, jewelry, luxury items, and country club expenses.
Fraudulent Investment Warning Signs
As a commercial litigation attorney, I’ve seen several clues to potential bad investments, including some dropped by Farias.
- Audited financials. No audited financials were provided to Integrity Aviation investors. The SEC requires a determination if investors are “accredited” or “sophisticated.” If not, audited financial statements must be provided to investor.
- No authorized sales commissions. When potential investors are dealing with a sales person, the sales person’s commissions should be authorized in the investment agreement.
- Self-directed IRA. While self-directed IRAs can yield better results, be aware that many fraudulent investment schemes are funded by investors converting traditional IRA accounts into self-directed funds. “’As we allege, Farias encouraged his victims to invest their hard-earned retirement nest eggs into his fraudulent business,’ said David Peavler, Regional Director of the SEC’s Fort Worth Office. ‘Investors should always proceed cautiously whenever someone suggests moving funds from traditional retirement accounts to self-directed IRAs in order to make an investment.’” SEC Press Release
- Fraud knows no dollar amount. While one first responder invested over $500,000 with Farias, other investments were as small as $1,000. Investment scams don’t just come super-sized.
Don’t Fall for an Investment Scam
Fraudulent investment schemes are not a blip on the radar. Even savvy investors fall prey not just to strangers, but also to friends, acquaintances, and from people with great resumes and fake resumes. The scammers get better every year making their lies look believable.
We hope all your financial investments are safe and profitable. But if you find yourself searching for an experienced commercial litigation lawyer or an oil and gas/fraud attorney, we are here to help.