Posted by BC on June 15, 2009 at 14:43:12:
In Reply to: SEC goes after Sports Webio posted by Moher Beer on June 15, 2009 at 11:57:31:
SEC charges founder of Chicago Sports Webio in fraud
By Ameet Sachdev and Becky Yerak | Tribune reporters
1:28 PM CDT, June 15, 2009
Mike North's business partner in a new Internet sports-talk station in Chicago is a convicted felon who has filed for bankruptcy three times and now faces civil charges of running a Ponzi scheme.
On Monday, the U.S. Securities and Exchange Commission accused David J. Hernandez of violating federal securities laws, three days after the FBI executed search warrants on the Chicago office of NextStep Financial Services Inc. and NextStep Medical Staffing, two business ventures with ties to Hernandez.
The SEC said NextStep Financial is a defunct corporation through which Hernandez operated his fraudulent scheme. He allegedly sold so-called "guaranteed investment contracts" to investors that promised returns of 10 percent to 16 percent per month. The complaint said Hernandez, 48, of Downers Grove, raised more than $11 million from investors in at least 12 states.
Hernandez, could not be immediately reached for comment. One of his companies, Spectrum Entertainment Group Inc. is the parent of the sports-talk Web site, Chicago Sports Webio. North, a long-time Chicago radio personality, co-founded the Web site with Hernandez. On Friday, Hernandez fired North after the host started asking questions about why checks to other on-air personalities, such as Chet Coppock, were bouncing.
On Sunday, Hernandez told a Tribune reporter that the FBI action was connected to the actions of a "disgruntled ex-employee who I caught misappropriating funds" and fired several weeks ago. He said that he was cooperating with the U.S. attorney's office, and that if checks bounced, it was because the investigation led to accounts being frozen. He added: "None of our companies are having any troubles."
The SEC paints another picture. The agency said Hernandez lied numerous times about himself, about his companies and the nature of the investment.
He told investors that NextStep Financial invested in consumer payday loans, which sometimes carry very high interest rates, the lawsuit said. Instead he diverted the funds to other companies he controlled, the SEC said.
One of those companies was Spectrum Entertainment.
Chicago Sports Webio debuted earlier this year with media fanfare and what appeared to be a sizable financial commitment by Hernandez. The SEC charges that Hernandez spent at least $275,000 of investor funds to pay for advertising and promotion of the Web site and another company he controlled, NextStep Medical. He also diverted at least $165,500 of investor funds to Spectrum's bank accounts, the complaint said.
Hernandez also diverted about $500,000 for his and wife's personal use, the complaint said. He bought an Audi Quattro car for $25,879, a $16,674 Steinway piano and $34,000 in jewelry from Tiffany's. He also spent $23,000 for a holiday party at the Ritz-Carlton in Chicago in December. He also paid off a $318,000 mortgage on his Downers Grove residence.
The SEC said that in his pitch to potential investors, Hernandez misrepresented his educational background. The agency said that he never attended the University of Wisconsin, where he said received his bachelor's degree in finance and a master's in business administration. His law degree from John Marshall Law School in Chicago is also fake, the SEC said.
Hernandez also hid his criminal background from investors, the complaint said. In October 1998, he pleaded guilty to wire fraud for diverting money that investors sent to Columbia National Bank in Chicago, where he worked as a vice president, to accounts under his personal control. Hernandez was sentenced to 34 months in prison and ordered to pay restitution of $590,533.67.
Court records also show that Hernandez and his wife, Gina Hernandez, filed for personal bankruptcy three times, in 2004, 2005 and 2006.