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According to the Securities and Exchange Commission, Marco “Sully” Perez of Midland, Texas, used to tell his clients that his investment scheme was better than a 401(k).
Now the U.S. District Court in Western Texas has ordered the entire operation halted and any remaining assets frozen. The SEC says the investment plan was a “sham” and a Ponzi scheme. Perez blew millions of dollars of his investors’ retirement money living high on the hog, and most of the money is gone, the SEC says. That included over $1 million spent on new cars, $300,000 on jewelry, $450,000 flying around on private airplanes, and $110,000 holding his wedding reception aboard the Queen Mary cruise ship. All during a period of just over three years.
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During that time Perez also gambled away more than $200,000 at casinos, made cash withdrawals totaling more than $600,000, and spent huge sums of money on everything from a helicopter to the Dallas Cowboys, says the SEC.
The total alleged spree came to about $5.6 million, or more than $4,400 every day, including Sundays. That was nearly two-thirds of the money invested with him, the SEC says.
Permian Basin Proppants Inc., a company that Perez controls as president and used to carry out the scheme, was also charged, the SEC said.
Meanwhile, the Commission reports, the entire scheme was bogus. “Permian was and is a sham,” and “had little legitimate revenue,” the Commission says. “In reality, Perez and Permian used most of the investor funds for Perez’ personal benefit, to make Ponzi payments to investors,” and for nonbusiness purposes, it says.
And if the SEC is correct as many as 265 ordinary investors stand to lose on average as much as $35,000 of their retirement funds apiece.
Perez’s attorney, Arnold Spencer of Dallas, tells MarketWatch: “Mr. Perez intends to defend himself against the allegations in the lawsuit. But more importantly, he intends to work with the SEC and his investors to protect the interests of the investors and the company.”
Regardless of how this turns out, we assume investors can forget about their immediate dreams of early and easy retirements.
Along the way, says the SEC, investors ignored a long list of major warning signs.
Among them:
1. Pie-in-the-sky promised investment returns with supposedly low risk. Perez promised returns on investment of up to 30% with absolutely no risk, says the SEC. This, at a time when even the likes of Goldman Sachs and Warren Buffett couldn’t average better than about 12%–with lots of risk. Perez even guaranteed individual investors returns ranging from 10% to 100% within 30 to 90 days, the SEC reports.
2. Questionable business practices. Perez also allegedly offered some investors a guaranteed extra 20% return. if they would post glowing reviews of him and his investment operation on the website of the Better Business Bureau.
3. Things that made no sense. Perez allegedly told investors his business always kept enough cash on hand to pay off all its investors — raising the obvious question of why this amazingly lucrative operation, flush with cash, even needed outside investors at all.
4. Artificial ways to stop investors pulling out their money. Permian allegedly had a 366-day lockup on funds. And, says the SEC, when certain investors tried to take out their money Perez told them that the SEC wouldn’t let them.
5. Affinity marketing. Perez, a U.S. Navy veteran, marketed his scheme especially to other veterans as well as active military personnel. He made much of his apparent “military to millionaire” story. Affinity marketing isn’t always a warning sign, but it is so common in investment frauds that the SEC actually has a warning paper out on the subject.
OK, so to experienced and knowledgeable investors, some of these alleged red flags are so obvious they’d merit an immediate Bronx cheer. But many, maybe most, people are relatively inexperienced when it comes to investing. And why shouldn’t they be? The subject can be very complex, investment products can be mysterious and opaque, and financial education is either basic or nonexistent.
Cases like this raise again a simple, obvious question: Wouldn’t it just be cheaper all round if we taught people more about this stuff while they are still in school?
