The United States District Court for the District of Colorado recently entered a judgment against Larry Michael Parrish (Parrish), who had operated a Ponzi scheme that raised approximately $9.2 million from at least 70 investors in three different states. To obtain investors, Parrish promised 30% annual returns and claimed that the securities were “extremely low risk.” The Securities and Exchange Commission filed a complaint against Parrish in March of 2011, alleging violations of the Securities Act of 1933 (Securities Act), the Securities Exchange Act of 1934 (Exchange Act) and the Investment Advisers Act of 1940 (Advisers Act). The District of Colorado ultimately found Parrish in violation of securities registration, anti-fraud, broker-dealer registration and broker-dealer bar provisions of those acts.
Based on the court’s finding of Parrish’s liability, the court granted the SEC’s requested relief of an injunction, disgorgement and a civil penalty. Based on the nature of Parrish’s violations and the fact that he had already been barred by the SEC for operating a prior investment scheme, the court permanently enjoined Parrish from future violations of certain provisions of the Securities Act, Exchange Act and Advisers Act. In addition, the court ordered Parrish to disgorge his “ill-gotten gains.” In the context of a Ponzi scheme, these “ill-gotten gains” consist of subtracting the total distributions to investors from the total contributions from investors. For Parrish, the total disgorgement was $4,139,858 plus pre-judgment interest. Finally, the court also believed that a significant “third-tier” penalty was appropriate. Due to the substantial investor loss that Parrish’s Ponzi scheme caused, Parrish’s promises of 30% returns and characterization of his investment as “low-risk,” and Parrish’s use of some of the investor’s money for his own personal benefit, the court imposed a civil penalty equal to the total disgorgement amount: $4,987,777.26.
SEC v. Parrish, Civil Action No. 111-cv-00558-WJM-MJW (D. Colo. Sept. 25, 2012).