SEC Targets Bill Funding Fraud
In what Securities and Exchange Commission lawyers have described as a matter that “presents an emergency”, the US regulator has decided to shut down a Miami-based company for allegedly “fraudulent” activity relating to the bill financing system of society in Brazil.
Reports on Tuesday, June 7 indicated that the SEC had Financial Providence targeted investmentswhich reportedly raised $64 million from 420 investors over the past five years. American investors provided the company with funds to purchase accounts receivable in Brazil.
But the securities were not registered with the SEC and the brokers who sold them to investors were not registered, according to reports.
The SEC said in its court filing that Providence Financial Investments cannot account for the funds it raised, the reports added.
A lawsuit was filed in federal court in Minneapolis on Tuesday, with Providence Financial Investments listed as a defendant. The head of financial advisory firm Infinity Income, Jeffory Churchfield, is also named as a defendant; his company allegedly acted as a broker who sold Brazilian claims to investors.
“Providence denies the allegations of fraud,” a lawyer for the financial investment firm said in a statement provided to reporters. He added that the company “has been cooperating with the SEC and working to address the SEC’s concerns.”
Reports indicate that Providence purchased unpaid invoices from SMEs in Brazil at a discount, providing these small businesses with immediate capital. Providence then bundled that debt into 12- or 24-month securities and sold them to investors with advertised fixed rates of return of up to 13%, the reports added.
The SEC said in its filing, however, that Providence and its brokers failed to tell investors that brokers received a 6% commission when these securities were sold. At most, the regulator argued, two-thirds of investor funds were actually used to buy unpaid invoices from Brazilian SMEs.
Last year, Providence reportedly owed investors $64 million, but affiliates held only $10.6 million in receivables assets from Brazilian companies.
The company’s “current financial condition appears extremely precarious,” the SEC said.