By Cheryl Miller, From The Recorder

SACRAMENTO — The Securities and Exchange Commission charged a Los Angeles firm and its co-founders with defrauding more than 250 investors who were promised huge returns on a business recruiting plaintiffs for lucrative class actions and other litigation.

Instead, James Catipay and David Aldrich only spent about one-third of the $11.7 million they collected on locating prospective plaintiffs, according to a complaint the SEC filed Friday in the U.S. District Court for the Central District of California. The two men spent some of the rest on personal expenses, including a pricey downtown L.A. condominium, personal taxes and “high end” furnishings, the complaint alleges.

The men’s company, PLCMGMT LLC, also referred to as Prometheus Law, allegedly promised investors returns of up to 300 percent. They will eventually owe investors at least $31.5 million under terms of the investment agreements, money they do not appear able to pay, according to the SEC.

“We allege that Catipay and Aldrich have defrauded investors, many of them retirees, by repeatedly downplaying the risks associated with their investments and the fact that their entire business model was unrealistic to afford the exorbitant returns promised,” Michele Layne, director of the SEC’s Los Angeles regional office, said in a prepared statement.

Aldrich, a resident of Washington, could not be reached for comment. Messages left for Catipay at a Southfield, Mich. law firm bearing his name and at a Los Angeles tax “resolution” firm where he is listed as managing attorney were not immediately returned Friday. Neither man is a member of the California State Bar, although Catipay is listed as a member in good standing with the Michigan bar.

The SEC says the men told investors, many of them retirees, that they would recruit plaintiffs for mass tort litigation involving prescription drugs or medical devices and then refer them to a contingency-fee attorney in Seattle referred to in the complaint only as “Attorney A.” The defendants guaranteed returns of between 100 percent and 300 percent, the SEC said.

When the first round of $120,000 in payments to investors came due, “the defendants used money raised from new investors to pay the existing investors—payments that both Catipay and Aldrich admitted were, in fact, Ponzi payments,” according to the complaint.

The SEC tells the rest of the story this way: In February 2015, after working together for approximately two years, Catipay and Aldrich parted ways. Catipay took sole ownership of Prometheus and continued taking on investors but stopped searching for new plaintiffs—something he didn’t tell people giving him money. To date, lawsuits have only been filed on behalf of 700 of the 2,300 potential plaintiffs represented by Prometheus, and the company has collected less than $10,000.

The SEC has charged Catipay, Aldrich and Prometheus with the unregistered sale of securities and two counts of fraud. Catipay was also charged with violating the Exchange Act. The SEC is also seeking preliminary and permanent injunctions, the appointment of a receiver for Prometheus, a freeze of assets, financial penalties and disgorgement plus interest.

IMAGE:U.S. Securities and Exchange Commission building Photo: Diego M. Radzinschi

For more on this story go to: http://www.therecorder.com/id=1202755154910/SEC-Says-Firm-Ripped-Off-Class-Action-Investors#ixzz46C6ia0tW