Wakefield man accused of running multimillion-dollar Ponzi scheme
BOSTON --A federal judge Tuesday froze the assets of a Wakefield businessman accused of running a Ponzi scheme and bilking $15 million to $25 million dollars from at least 160 people in 12 states.
The Securities and Exchange Commission alleges that Frank J. Russo, 51, sold unregistered investments and concocted fake paperwork to bolster his claims of high returns. An SEC civil complaint filed Tuesday outlines how regulators say Russo used three companies to lure victims with investments that were too good to be true.
Russo's lawyer, Paul V. Kelly, said his client has managed investments for 25 years for an extended group of family and friends on Boston's North Shore. Kelly acknowledged that Russo may have put money in risky ventures, but denied allegations of fraud.
"This is not a situation of someone who engaged in any theft of any kind or lined his own pockets," Kelly said. "This is a family guy with a good heart who was trying to get the best returns for his investors."
Kelly also acknowledged that Russo had never registered with the state or federal government as an investment adviser, but said his client was not operating as a financial consultant in the traditional sense.
The businessman first caught the attention of state regulators on May 11 when a Massachusetts man who had invested $1.5 million called the state Securities Division to discover that Russo not registered as a financial adviser. The investor said that Russo had been pressuring him to take money out of an IRA despite a stiff penalty for early withdrawal.
The state subpoenaed Russo to explain his businesses and notified the federal government.
When Russo did not appear before state regulators, they were granted a cease and desist order to stop Russo's business on May 25, said Brian S. McNiff, spokesman for the secretary of the state's office, which regulates securities.
Russo's lawyer said Monday that his client had not met with state regulators on the advice of a previous attorney and was now fully cooperating.
The SEC says it found people across the country who bought Russo's unregistered securities dating back to at least 1996. The government claims he solicited investments with two companies -- FJR Corp. and Russo Associates Limited Partnership -- and then diverted money to California-based Eliot Partners, of which Russo is the chief financial officer.
Kelly said that although Russo is one of Eliot's founding partners he has never been paid in any way by the company. Russo invested his clients' money in the company and still hopes it will generate a return, Kelly said.
The government also claims Russo promised a minimum of 10 percent returns on investments and produced bogus paperwork to support his claims, according to the SEC. He told his investors he would not earn a commission for anything less than 10 percent.
The SEC alleged that Russo was really running a classic Ponzi scheme, using money from new clients to pay off old investors.
Kelly did not fully address those specific allegations, but repeated that Russo was acting in "good faith" on behalf of his clients.
