The Securities and Exchange Commission (SEC) announced in February that
Joseph Zada was ordered to pay $121.6 million by a federal judge in Michigan
following accusations that he duped at least 60 investors into buying
unregistered securities in the form of promissory notes. In its complaint,
the SEC alleged that Zada raised $27.5 million from 60 investors between
2006 and 2009 through the fraudulent sale of unregistered securities in
the form of promissory notes. Zada allegedly told investors that they
would earn as much as 48 percent return and that he would invest their
funds in oil-related investments through business contacts in oil-producing
countries in the Middle East.
Instead, the SEC alleged that Zada conducted a Ponzi scheme, utilizing
funds from new investors to pay earlier investors. Approximately $12.4
million was returned to investors as monthly “interest” payments
and the rest of the fund went to pay his personal and other expenses unrelated
to any investments. Zada, who once owned two multi-million properties
in Wellington, Florida including a 22,000-square-foot home in Palm Beach
Polo and Country Club, was known for throwing extravagant parties.
Judge Denise Hood granted the SEC’s motion for summary judgment,
ruling that the SEC offered overwhelming evidence in support of its motion
and that Zada offered little or no evidence to contradict the SEC’s
assertions of fact and conclusions of law. The $121.6 million is a combination
of civil penalties, interest, and disgorgement.
Zada’s attorney immediately filed an appeal to the United States
Court of Appeals for the Sixth Circuit alleging that there were genuine
issues of material facts as to whether the transactions at issue were
securities, whether misrepresentations were made, the impact of Zada’s
invocation of the Fifth Amendment privilege against self-incrimination,
and whether the monetary penalty was reasonable.
The Sixth Circuit upheld the District Court’s judgment, adding in
its opinion that "[l]ittle of what Zada told the investors was true.
Zada’s connections with Saudi royalty existed only in his imagination.
On one occasion Zada invited investors to a party, where he paid actors
to pose as a Saudi prince and princess.” You can read the Sixth
Circuit’s entire opinion
In a parallel
, a grand jury in the United States District Court for the Southern District
of Florida indicted Zada in 2013 for mail fraud, wire fraud, money laundering,
and interstate transportation of stolen property. The criminal case is
still ongoing, and the jury trial is currently set to begin on July 27, 2015.