The Indian-origin person, also known as 'Buddy' Persaud, allegedly collected more than USD 1.1 million from gullible investors with a promise of guaranteed return of 6-8 per cent.
However, he misappropriated nearly half of the investors' funds or about USD 415,000 to support him and his family members' lifestyle, the Securities and Exchange Commission (SEC) said late last night.
The regulator has charged that Persaud, in his trading decisions, mainly relied on an Internet service that provided directional market forecasts based on lunar cycles and gravitational pull.
His investment strategy was premised on the idea that gravitational forces affect mass human behaviour, and in turn, the stock market, SEC said.
Persaud believed that when the moon exerts greater gravitational pull on the earth, people feel dejected and are more inclined to sell securities, the regulator added.
The SEC said that it has charged Florida-based Persaud of luring "family, friends, and others into investing in his firm, White Elephant Trading Company LLC, by falsely guaranteeing their money would be safe and yield lofty returns ranging from 6 per cent to 18 per cent.
"Persaud told investors he would invest in the debt, stock, futures, and real estate markets, but did not reveal that his trading strategy was based on his belief that markets are affected by gravitational forces," SEC said.
According to the SEC's complaint filed in the US District Court in Florida, Persaud used investors' money to make payments to other investors, the hallmark of a Ponzi scheme.
He also lost USD 400,000 of investor funds through his trading and diverted at least USD 415,000 to pay for his personal expenses, the SEC has alleged.
Persaud was a registered representative at a Florida-based broker-dealer, but separately operated the now-inactive White Elephant, starting in mid-2007.
Between July 2007 and January 2010, Persaud raised more than USD 1 million from at least 14 investors. His company was planning to raise as much as USD 10 million.
Persaud used this money to pay for, among other things, his home mortgage, tuition for his children, family vacations, and clothing. Persaud also used a debit card linked to the White Elephant bank account containing investors' contributions, and allowed his son to do the same.
"To hide this from investors, Persaud repaid earlier investors with money collected from new investors in typical Ponzi scheme fashion," SEC has charged.
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