On January 29, 2019, the New Jersey State Attorney, Securities Fraud Prosecution Section filed a complaint for a civil action on behalf of the New Jersey Bureau of Securities in Mercer County Chancery Court alleging that Ford Graham, his wife Katherine Graham and several entities Ford Graham controlled participated in securities fraud relating to the sale of unregistered securities in purported oil and gas ventures. Media reports state that Graham, “with the active participation of his wife,” induced individuals in five states to invest close to $5 million with Graham’s LLCs in an alleged Ponzi Scheme.
The complaint alleges New Jersey natives invested $1.9 million with the LLCs in the Ponzi scheme. In connection with the fraudulent Ponzi scheme the New Jersey State Attorney General charged the Grahams with a the violation of the following under Title 49, Chapter 3 of the New Jersey Uniform Securities Laws:
1) N.J.S.A. 49:3-60 (offer and sale of unregistered securities)
2) N.J.S.A. 49:3.;.52 (b) (making materially false and misleading statements or omitting facts necessary to make the statements not misleading
3) N.J.S.A. 49:3 – 52(c) (engaging in any act or practice which would act as a fraud or deceit upon any person in connection with the offer, sale, or purchase of securities);
Graham lives in Princeton, graduated from Princeton University and has a law degree and MBA. His wife graduated from Vanderbilt University and also has a law degree. The complaint alleges that several investors knew the Grahams through their contacts in the “Princeton social scene.” In addition to charges of offering and selling unregistered securities and making false misleading statements to investors in connection with securities fraud, according to the New Jersey Bureau of Securities, neither of the Grahams is registered as an investment advisor, agent, or broker dealers in the securities industry in violation of N.J.S.A. 4 9:3-56 (a) (acting as an unregistered agent).
The limited liability companies created by Graham were also named as defendants: Specialty Fuels America, LLC; Aries Energy Group Venture, LLC; CCC Holdings, LLC; Rattler Partners, LLC; and Venture Energy International, LLC. None of these entities were registred as a licensed broker dealer.
Graham told prospective investors that the investments in question were low risk and they could expect returns up to 20%. The investments themselves consisted of unregistered promissory notes, purchase agreements for certain interests and a profit participation interest agreement issued by the LLCs. Graham went so far as to prepare memoranda of understanding, subscription agreements and security agreements for some of the investments. One New Jersey investor contributed $1.5 million to the Grahams’ scheme. According to the complaint, Katherine Graham on several occasions told another investor, a friend of the family who repeatedly visited with the Grahams at their home, that she was investing monies received from an inheritance in one particular drilling project (she never did).
In classic Ponzi scheme fashion, the Grahams took money invested in the oil and gas projects and moved the funds in and out of the bank accounts of the LLCs Ford Graham controlled. The funds were ultimately deposited into their personal bank accounts. They proceeded to withdraw funds to make payments to earlier investors and for personal use, such as retail purchases, vacations, country club fees and private school tuition for their child.
The complaint filed by the New Jersey Attorney General seeks restitution for the various New Jersey residents who invested in the Grahams’ fraudulent investment scheme. However, neither the complaint nor media reports indicate if any of the investors’ funds still exist. Nor is there any indication of exactly how the Graham’s Ponzi scheme was exposed. Unfortunately, it is not unusual for a Ponzi scheme to collapse when the defrauders run out of money and can’t make promised payments to investors.
The takeaway from this sordid tale for investors? Given the pedigree of the Grahams, it’s easy to see how members of the Grahams’ “Princeton social scene” were duped into making investments in Ford Graham’s LLCs. But there were certainly red flags. The complaint alleges that several times, when questioned by investors about the performance of their investments, Graham responded with “excuses and unfulfilled promises of imminent payment.” Simply the fact that Graham was promoting unregistered securities is a definite red flag; any investor considering participating in such investments should conduct his own extensive due diligence examination before agreeing to participate.
If you have questions or concerns about a potential investment in unregistered securities, or concerns about the handling of your brokerage or retirement accounts, contact the experienced securities litigation and regulatory attorneys at Lubiner, Schmidt & Palumbo.