The owner of two Chicago-based investment advisory firms is facing civil and criminal charges on Wednesday after authorities claim he operated a long-running, $11 million Ponzi scheme.
The Securities and Exchange Commission claims investment fund manager Neal Goyal used his two firms Blue Horizon Asset Management and Caldera Advisors—which are both unregistered investment advisory firms—swindle at least 35 clients out of $11.4 million with promises of substantial returns through four funds launched starting in 2006.
But according to the regulator , very little trading actually occurred. Instead, Goyal used the funds to pay business expenses, including moving into a brand new, lavishly furnished office. Goyal also used investor money to support a variety of personal ventures, including a $1.4 million home purchased in 2012, luxury vacations, funding for a Chicago bar and start-up capital for two children’s clothing boutiques operated by his wife, the SEC claims.
Goyal also allegedly used investor money to fund extravagant “perks” for himself and his employees including a company vacation at a luxury resort in the Caribbean, a lavish office holiday party and gifts to employees, including individual one-ounce gold coins.
The fraud remained undetected through the distribution of false account statements, the SEC claims. And when Goyal began to receive redemption requests from investors in 2007, the SEC claims he began running funds as a Ponzi-type scheme, making payments to old investors funded through investments by new clients.
By 2009, Goyal had stopped trading for two of the early Blue Horizon funds and failed to trade at all for the third Blue Horizon fund, according to the SEC. Goyal allegedly started engaging in fraud with his fourth fund—the Caldera Equity Fund—by February 2009.
“From the beginning of his scheme, Goyal lied to investors and created fake account statements portraying positive trading returns in order to gain their trust and attract additional investments,” David Glockner, director of the SEC’s Chicago Regional Office, said in a statement Thursday.
Along with its complaint, the SEC sought and received a permanent emergency injunction and asset freeze on Wednesday against Goyal and his firms. Blue Horizon Asset Management and Caldera Advisors consented to the order without admitting to or denying the changes. Monetary remedies will be decided at a later date, according to the court order.
In addition to the SEC’s compliant filed Wednesday night, the U.S. Attorney’s Office for the Northern District of Illinois announced Thursday  it would bring parallel criminal charges against Goyal. The charges, which include wire fraud, carry a 20-year maximum prison sentence and a $250,000 fine and mandatory restitution.