AUSTIN - Texas Attorney General John Cornyn today announced the filing of a lawsuit against Bradley J. Farley, owner of San Antonio-based Abba Funding. Farley engineered a Ponzi investment scheme involving approximately $9,000,000 from 80 investors, and many of the investors were retired senior citizens. Farley committed felonies in not registering as a securities dealer with the Texas State Securities Board and selling unregistered securities promising a high rate of return.
"This unscrupulous businessman broke the law and scammed senior citizens who thought they were making a safe investment. This unconscionable and illegal behavior will not go unpunished. When you prey upon innocent consumers, you are going to pay the price," Attorney General Cornyn said.
A typical investor paid Farley $100,000 and believed he or she was buying a federally insured $100,000 CD. Many investors signed a contract naming Farley as the "Trustee" of the investor's money. In fact, Farley used the investors' money to purchase the CDs and then used these CDs as collateral for loans made to him personally.
Farley operated a classic "Ponzi" scheme, using proceeds from loans secured by investors' CDs to make "interest" payments" to investors. Investors believed they were receiving investment returns, but in fact, they were receiving loaned money. Investors believed their money would be invested, not that it would be used to secure loans to pay other investors. Investors were led to believe they would receive their $100,000 when their CDs mature. In fact, only if Farley did not default on the loans secured by those CDs would the investors ever see their initial investment again.
A typical Ponzi scheme relies on a steady stream of new money to pay previous investors; usually the early investors tell their friends about the payments they receive and believe these payments are investment returns. In fact, these payments often come straight from new investors. When the stream of money dries up, old investors do not get paid, and the scheme collapses. Farley's scheme inserted the CDs and bank loans into the program, but the effect was the same: investor money was not being invested, it was being used by Farley for his own purposes.
Farley's newspaper ads stated, "... the CDs purchased from federal banks to secure the Certificate of Deposit Program are insured by the FDIC." In fact, his clients' investments were insured by a single private insurance policy which only covered a small amount of the investors' money. In addition, Farley did not tell potential investors that he had lost money for the past two years.
Farley's scheme violates the Texas Securities Act and the Deceptive Trade Practices Act. Last Tuesday, Feb. 15, the Bexar County District Court issued a temporary restraining order, ordering Farley and his agents to immediately stop their Ponzi scheme. The court also ordered all banks known to have accounts with Farley to freeze those accounts and turn over records of Farley's transactions. The court also appointed a receiver, Ed Rishebarger, a San Antonio CPA, to take over the business operations of this company, gather Farley's assets derived from investor funds, and make an orderly restitution to the investors.
The Attorney General's lawsuit seeks restitution for consumers and civil penalties of $10,000 to $100,000 per violation if the court finds that Farley's operation targeted consumers over 65 years old.
The lawsuit was filed at the request of the Texas State Securities Board. The filing of this case was handled by Assistant Attorneys General Ann Hartley of the Financial Litigation Division in Austin and Raul Noriega of the Consumer Protection Division in San Antonio.
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