SEC Settles With Philadelphia RIA For $11 Million

Otto Sam Folin, a Philadelphia registered investment adviser, has agreed to a deal with the Securities and Exchange Commission (SEC) to settle charges that he misappropriated $8.7 million from clients who thought their money was going to support socially conscious investments, according to Investment News. The deal calls for Folin to pay roughly $11 million, which includes the $8.7 million that he took from clients, plus $1.45 million in interest, in addition to paying a $725,000 fine, according to the settlement filed July 28, 2011 in the U.S. District Court in Philadelphia. The SEC also revoked Benchmark’s investment adviser registration.

Between the years 2002 through 2010, Mr. Folin and Benchmark Asset Managers LLC misrepresented how the $8.7 million he took from clients, friends and family would be spent. One of the investments that he peddled to them was interests in Safe haven Investment Portfolios LLC, a group of pooled investment vehicles created by Benchmark, which they managed, according to the SEC complaint. Other investments he sold to investors were Benchmark notes and notes in Harvest Managers LLC, which served as Benchmark’s parent. Folin also used some of the money to pay back investors from a failed business deal in 1999 where he had raised money from religious organizations and issued promissory notes representing investments and microfinance loans to South African causes, according to the SEC. The rest of the money was used to pay his operating expenses including his salary, to buy homes and to pay other investors in his Ponzi scheme. The SEC alleged that Folin promised and guaranteed above market returns to investors while failing to disclose Benchmark’s “continually precarious financial positions” but for the money received under the guise of “development costs.”

One example of Folin’s follies was when he convinced a Benchmark client in 2008 to liquidate $350,000 of his retirement account that was conservatively invested in bonds and to purchase one of Safe Haven’s portfolios. Later in the year, Benchmark loaned $400,000 to Harvest, which then paid it to Folin. He used the money to buy a condominium in Philadelphia that year. In a term spanning several years, Safe Haven paid $1.7 million in “development costs” to Benchmark and Harvest, according to the SEC. It also said that Safe Haven also “loaned” Benchmark and Harvest money which was used to purchase a home for a Benchmark employee and a wedding gift for a friend. Needless to say, the loans were not repaid.

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