Another “sure fire” investment deal has victimized unwary investors, both senior citizens and others. A Detroit area money manager, Edward May, was sued by the SEC for allegedly conducting a massive investment fraud that involved as many as 500 to 1,200 investors, bilking them of from $74 to $250 million. Mr. May and his firm, E-M Management Co. LLC, allegedly sold shares in fictitious Las Vegas casino and resort telecommunications deals. We have recently seen the promotion of similar investment vehicles promoted heavily to senior investors involving the sale of securities in the form of interests in limited liability companies (”LLCs”).

That this particular rogue money manager and his cronies were allegedly able to dupe so many investors nationwide, from New York to California, over the better part of the last ten years before being caught isn’t the most startling aspect of this story. The more important message is that the warning signs of fraud were so carefully concealed from investors as to escape notice. A similar story of concealment was uncovered in the fraud cases in which Eppenstein and Eppenstein recovered over $46 million for a large group of investors (from California, the Midwest, and New York) against Refco, Inc.

The SEC press release concerning May and E-M lays out the alleged modus operandi:

Both orally and in writing, May and E-M promised returns in the form of monthly payments to investors for a period as long as 12 to 14 years, and “guaranteed” that investors, at a minimum, would receive the promised payments for approximately the first 20 to 24 months after they invested.

The complaint alleges that, in reality, the LLCs did not have any telecommunication contracts with the establishments identified in offering materials provided by May and E-M. To further their scheme, May and E-M provided some investors with copies of fictitious contracts between E-M or certain LLCs and various hotels and casinos. Some of these fictitious contracts included the names of purported hotel executives who did not exist.

According to the SEC the fraud allegedly targeted “retirees and other older investors” in particular. Though promises that sound too good to be true often are, and “guarantees” of extraordinary minimum returns usually turn out to be bogus, sales practice abuses and outright fraud continue to trap many typical investors, whose college education, above average income, and lifetime experience are no match for the determined scam artist. ( See our previous Securities Arbitration Posting: “Debunking a Myth: The Unsophisticated Investor Profile,” September 26, 2007).