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 here.In a parallel criminal action , 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.