A Washington state agency has filed administrative charges against a Vancouver man accused of violating the state Securities Act by using funds from a pooled investment vehicle to make Ponzi payments to investors, among other violations.
The Washington Department of Financial Institutions Securities Division entered the statement of charges in mid-December against Charles Richard Burgess, The Columbian reported.
The securities administrator intends to order Burgess to cease and desist and pay a $100,000 fine, as well as costs from the investigation totaling no less than $25,000, according to the statement of charges.
Burgess’ attorney — Todd Maybrown of the Seattle firm Allen, Hansen, Maybrown & Offenbecher — declined to comment on the pending litigation.
According to the statement of charges, between October 2013 and April 2021, Burgess offered and sold about $6.3 million of investments in the pool to 40 investors.
However, the Securities Division received records from Burgess and investors indicating he had sold participation in the pool since about 1994, but because of bank records-retention policies, the Securities Division could collect records only as far back as late 2013.
The Securities Division could not comment on whether there is a criminal investigation. A spokesman with the FBI’s Seattle office said the agency does not typically confirm or deny investigations. Nothing has been referred to the county prosecutor’s office.
As of March 2021, the pool had 43 investors, with 39 in Washington. Burgess often offered and sold participation in the pooled investment vehicle to family and friends or family and friends of participants, the statement of charges says.
The offering has never been registered with the state, and Burgess is not a registered investment adviser, the department found.
Burgess provided limited information to potential investors and failed to discuss the risks, investment strategy, number of participants, products he buys and sells, whether the pool is diversified, and amount of funds in the pool or the total value, according to the statement of charges.
Burgess is accused of telling investors their funds would be pooled with funds from other investors and that he uses the money to trade in stocks. However, he allegedly used some new investment funds to make payments to existing investors. In a Ponzi scheme, a person pays investors with proceeds from new investors, rather than money earned from investments, promising large returns at little to no risk.
Burgess is also accused of transferring some funds to his personal account before transferring them to a brokerage account and sometimes he paid personal expenses directly from the pool’s account, according to the statement of charges.
Burgess also sent investors monthly statements that falsely showed the pool was successful and that investors were making a consistent profit, the statement of charges says.
In July 2021, Burgess reportedly told some investors the pool no longer had funds. He gave at least 17 investors a settlement agreement, as well as a repayment proposal and balance sheet showing the principal owed.
However, he didn’t tell them the number of pool participants who are owed funds, the total amount of principal owed or that the pool hadn’t had sufficient funds to repay investors since at least 2015, according to the statement of charges.