Publicly available records published by the Securities and Exchange Commission (SEC) and accessed on April 4, 2019 indicate that the SEC has filed charges against California-based investment adviser Carol Pedersen in connection with allegations she stole “millions of dollars from investors to perpetrate a Ponzi scheme.” Ms. Pedersen has accepted the entry of a judgment involving her consent to injunctive relief and disgorgement, according to the SEC, and is anticipated to enter a guilty plea.
According to the SEC’s complaint, Carol Pedersen is a former certified public accountant (CPA) and an unregistered investment adviser who represented to 25 investors that she would invest their funds in securities and raised $29 million or more doing so. Despite her promise that she would invest their funds in “‘federally guaranteed’ securities with returns typically greater than 8%,” according to the SEC, she directed about $25.6 million of the funds toward “Ponzi-style payments” to her customers, and spent the leftover funds on personal expenses, such as car payments and home renovation. In addition to the purported federally guaranteed securities, she also solicited investments in “the C.A. Pedersen Client Investment Pool, a limited partnership” which she managed and represented as owning a “large and diverse stock portfolio.” The SEC alleges that Ms. Pedersen covered up her scheme by giving investors falsified account statements which suggested their funds were earning returns. According to the SEC, the “scheme fell apart” following cash flow issues and an investor lawsuit in 2017.
With respect to her alleged misappropriation of customer funds, the SEC’s complaint alleges specifically that between September 2010 and July 2017, Carol Pedersen paid herself more than $1.9 million via wire transfers to a personal bank account, and used investor funds to pay “car payments, insurance payments, electric bills, medical expenses, and home renovation costs.” The complaint also states that instead of investing her customers’ funds, she “commingled nearly all Investor funds in a single bank account,” and made distributions to earlier investors using funds provided by newer investors “almost from the moment of inception.”
With respect to the C.A. Pedersen Client Investment Pool, the SEC’s complaint states that Ms. Pedersen “personally prepared and sent period account statements” to investors in the CAPCIP which “falsely represented” its holdings, representing that its “large and diverse stock portfolio” was worth more than $350 million in May 2017, when in fact Ms. Pederson had “completely fabricated” its holdings, and the total assets under her management “from all investors” was never more than $12.9 million. The complaint states that when one of its investors request a copy of documents including CAPCIP’s limited partnership agreement, Ms. Pedersen “opened a brokerage account, purchased a portfolio of securities that resembled the CAPCIP Investor’s supposed ‘share’ of the CAPCIP portfolio… and advised the CAPCIP Investor that she had segregated the Investor’s assets and would transfer the assets upon request. Ultimately, Pedersen liquidated the account’s holdings shortly thereafter to make distributions to other Investors.” According to the SEC, this was the only time she “made actual investments” for CAPCIP.
Ms. Pedersen has agreed to a final judgment in which she will pay injunctive relief and be liable for disgorgement and interest of about $2.7 million; no penalty has been ordered against her “in light of her anticipated guilty plea and conviction,” and the settlement remains subject to court approval, according to the SEC.