SAN DIEGO
A 68-year-old man, who raised $8.3 million by lying to 32 investors, plead guilty to wire fraud in federal court and is facing up to 20 years behind bars when he is sentenced in August, officials said.
Stock broker, Sunil Sharma of Carlsbad, plead guilty Tuesday, admitting that he stole more than $6 million from local investors by falsely claiming their funds were safe through conservative investments.
However, officials said he pursued a risky day trading strategy that turned into a massive Ponzi scheme, according to officials.
To lure new investors, officials said Sharma paid $2.12 million in “returns” to old clients from funds generally derived from the contribution of later investors, officials said.
Sharma also admitted that he covered up the massive losses by continuing to falsely tell investors that their investments were doing well. He would send his investors monthly or quarterly statements that falsely reflected that their investments were generating the promised returns.
Sharma spent $2.5 million of investor money for his own personal use, including about $700,000 towards the down payment of a $2 million home in San Diego. He spent about $12,000 for a cruise in the Mediterranean and for leasing a Mercedes SL and a BMW.
U.S. Attorney Laura E. Duffy warned all investors to ensure that individuals soliciting money have appropriate licenses and audited financial statements.
“All investors—especially when they are dealing with their retirement savings—must exercise due caution before turning over money even to long-time friends or else what appears to be a safe harbor might turn into a ship wreck,” said Duffy
These are the facts surrounding this case:
- Sharma was a Series 7 licensed broker.
- He worked for Merrill Lynch, AG Edwards, and as an independent broker for Raymond James.
- In 2000, Sharma moved to San Diego where he continued to practice as an independent broker.
- Due to the market crash that followed September 11, 2001, Sharma and his clients lost a substantial amount of money. As a result, Sharma voluntarily gave up his license to act as a securities broker.
- After relinquishing his broker’s license, Sharma began to work in the insurance industry.
- In 2002, Sharma sold insurance from his business in Rancho Bernardo. He also began teaching seminars highlighting various types of insurance and annuities which could be purchased by his clients.
- In 2007, Sharma attended an “Investools” workshop that convinced him that he could make money trading stock options in a conservative manner.
- After attending the workshop, he set up Gold Coast Holding, LLC as a vehicle to trade options.
- Sharma initially funded Gold Coast with approximately $50,000 of his own money that he had made selling insurance.
- Using a bull and bear spread analysis, Sharma experienced “beginners luck” and began generating profits of more than 10% on his investment by late 2007.
- Due to the fact that his insurance clients were making very little money on their personal investments due to low interest rates, Sharma believed that they could make a better return —somewhere in the “neighborhood” of 5%-6% — if he could “day trade” their money and “pocket the difference.”
Sharma lied to his clients and falsely stated that Gold Coast was an extremely safe way to earn a monthly retirement income. This was because their money would be invested in several ways:
(1) part of a diversified portfolio
(2) pooled with many other investors
(3) used to buy bonds from emerging markets in Brazil, Russia, India, and China
(4) managed by Goldman Sachs.
Sharma guaranteed investors a rate of return —typically between 6%-7% — for two to three years and urged his clients to liquidate their retirement accounts and annuities based upon the safety of his investment scheme.
Although Sharma initially planned on buying foreign bonds with half the investor funds and day trading with the other half, he never in fact purchased these bonds or any other type of bonds.
Instead, Gold Coast Holding (and later a second company he established, Safe Harbor Tax Lien Acquisitions) day traded options using TDAmeritrade’s “think or swim” trading platform.
Although he was able to make his December 2014 monthly payout to investors, he ran out of funds in January, according to authorities.
The case was investigated by the FBI.
FBI Special Agent in Charge Eric S. Birnbaum stated: “Mr. Sharma’s short term gains have resulted in long term losses for his victims. This case serves as a reminder to ask questions and conduct your own due diligence before investing your hard earned money with any broker or investment fund.”