On March 29, 2010, the United States Securities and Exchange Commission charged Ohio-based investment adviser Enrique F. Villalba, Jr. with fraud for lying about his investment strategy, making fake account statements to hide losses, making unauthorized trades, and stealing investors' money. According to the SEC, Villalba, of Cuyahoga Falls, Ohio, solicited investors in California, Illinois, Ohio, Tennessee and Washington through his former investment advisory business - Money Market Alternative L.P. - by touting an investment strategy that he falsely claimed was conservative and relatively risk-free. Villalba promised clients that he would preserve their principal investment while still earning them returns of 8 to 12 percent annually, and assured them that their money would only be used for investments in securities. Instead, he allegedly traded predominantly in commodity futures contracts and lost millions of dollars doing so. Villalba also made Ponzi-like payments to some investors, i.e., he used newer investors' money to pay returns to earlier investors, and he misappropriated clients' money to enrich himself and invest in two start-up coffee businesses.
According to the SEC's complaint, Villalba raised more than $39 million in client funds over a 13-year period. To substantiate the safety of his investment strategy, Villalba falsely claimed that he placed stop orders approximately 2 percent above or below the entry price of the investments. Villalba further enticed prospective clients by assuring them their money would only be used for investments in securities, including S&P 500 Index contracts, U.S. Treasury bills or interest-earning money market accounts, and that his management fees would be limited to between 12 percent and 15 percent of the profits he generated on their behalf.
The SEC alleges that Villalba instead suffered more than $17 million in trading losses with his clients' money. Villalba also misappropriated more than $4.1 million of investor funds for his management fees, salary and company overhead. He used more than $700,000 of his clients' money to buy property and more than $1.2 million in two start-up coffee businesses that he owned. He also used new investors' money to pay investment returns to earlier investors, in Ponzi-scheme fashion. The SEC further alleges that Villalba made and provided his clients with fake account statements that hid his investment losses and his theft of client money. The fake documents always showed that his clients' accounts had increased in value.