Having lodged a complaint in a Maryland federal court, the US Securities and Exchange Commission is prosecuting the alleged perpetrators of a 'Ponzi-like' investment racket.

The SEC claims to have closed down an 'offering fraud' orchestrated by Kevin Merrill, 53, Jay Ledford, 54, and Cameron Jezierski, 27, that raised more than $345 million from 230+ investors for the ostensible purpose of purchasing consumer debt portfolios. The regulator says that between 2013 (if not before) and the present day, the venture was characterised by securities offerings rife with misrepresentations, fake debt, forged signatures, fabricated wire transfers, the movement of millions of dollars into personal accounts and an elaborate set of arrangements whereby the defendants offered and sold investments in the same (often fictitious) debt and/or debt portfolios to many victims.

Of the $345 million the business raised, more than $90 million was invested by more than 200 high-net-worth-individual investors; approximately $52 million by family offices; and nearly $203 million by feeder funds, largely made up of groups of individuals. This last category of investors contained a contingent of HNW individuals also.

Touting their purported expertise in collecting and reselling consumer debt - in this case generally auto debt, credit card debt and student loan debt - Merrill and Ledford offered and sold securities to investors with the promise of significant profits. They did so through a web of entities that they owned and/or controlled, including Global Credit Recovery, Delmarva Capital, Rhino Capital Holdings, Rhino Capital Group, DeVille Asset Management and Riverwalk Financial Corp, three of which are Delware companies. The SEC says that their alleged scam "has survived only with the influx of greater and greater sums of cash." It has obtained a court order to halt the operation and has also obtained an emergency asset freeze and the appointment of a receiver.

Instead of using investors' money as promised, the SEC alleges that the men stole a vast portion of it and used almost all that remained (about $197 million) to make Ponzi-like payments to earlier investors so that the alleged scam could continue. Merrill and Ledford, it says, maintained a lavish lifestyle, with Ledford misappropriating at least $40 million, transferring at least $17 million to personal bank accounts under his control and buying a $368,000 Ferrari, a $330,000 seven-carat diamond ring and a $168,000 23-carat diamond bracelet, while transferring $13 million to casinos. Merrill's figure is at least $45 million, with $7 million allegedly transferred to his personal bank accounts, $10.2 million spent on at least 25 expensive cars, $5.5 million put towards the purchase of a house in Florida and $500,000 spent on a Gulfstream private jet. The SEC says that many unsuspecting investors were victimised repeatedly and referred other prospective investors to the conspirators. This supposedly contravened s17(a) Securities Act 1933 and s10(b) Securities Exchange Act 1934 alongside its derivative rule 10b-5(a) and (c), all of which are anti-fraud provisions. Merrill and Ledford on their own allegedly broke s10(b).

The defendants used four basic structures for the investments in debt portfolios they offered and sold: "investor agreements," mainly sold to individual investors; "agreements concerning acquisition of portfolios," or similarly structured agreements; investments structured as credit facilities or promissory notes; and unit interests in limited liability companies. Their Maxwellian web of companies purportedly legitimised each other's existence and served as sources of references. Ledford ran his own CPA (chartered public accountancy) firm and owned about 20 firms with many staff. Investors played no part in the businesses' day-to-day operations.

To make it seem as though they genuinely purchased a debt portfolio as promised, Merrill and Ledford allegedly fabricated and distributed to investors fake purchase and sale agreements, some of which included the forged signature of an actual executive of a debt issuer, and fake wire transfer and confirmation documents. To attract 'sophisticated investors' the businesses, it is claimed, fabricated 'due diligence documents' that were full of falsehoods.

The complaint uses the example of a Mr A to illustrate the ways in which the business attracted and allegedly fleeced HNW individuals. Mr A was drawn in by an existing investor, Mr B, who was (the complaint alleges) himself a victim of the five-year-long fraud. He invested $3 million and has continued to 'reinvest' what he was told were his profits and is now owed $5 million. However, none of this money was invested. Mr A executed an investor agreement that said that GCR (the aforementioned Global Credit Recovery suite of corporations) would purchase debt portfolios for him, to be managed at the sole discretion of GCR and its management, and GCR would use its best efforts to produce a profit for him. The agreement contained a signature line for Merrill as the managing member of GCR.

Mr A initially invested $500,000 by wiring money to the aforementioned Delmarva Capital. Merrill gave him a document that said (allegedly falsely) that Merrill had used his money to invest in two specific debt portfolios. Instead, Merrill, through Delmarva, allegedly used $400,000 of it to pay off previous investors and used over $60,000 to pay off a credit-card debt and to pay his own relatives. A few weeks later, Merrill asked Mr A if he was interested in investing in two additional debt portfolios. Mr A agreed to invest another $500,000 and wired it to Delmarva. Again, $400,000 of it allegedly went to a luxury sports car dealership for the initial payment on a $2-million 2014 Pagani Huayra Diablo, $54,000 went in payments to existing investors and $20,000 went to pay off credit card debt. This cycle went on and eventually Mr A had handed over $1.8 million. The SEC's complaint says that all individual investors fell victim to similar conduct.