The Securities and Exchange Commission (SEC) has charged an equipment leasing company and its founder with defrauding investors in connection with sales of more than $80 million in promissory notes.
According to the US regulator, between 2014 and 2017, Essex Capital Corporation and its founder, Ralph Iannelli, made a series of false and misleading statements and illusory personal guarantees to registered investment advisers to induce them to invest millions of dollars of their clients' money in Essex's failing equipment leasing business.
The SEC alleges that Essex and Iannelli provided one investment adviser with fake financial statements that overstated Essex's assets by more than $20 million, and falsely told another investment adviser that Essex would assign equipment leases to its clients when the same leases had already been pledged as collateral for bank loans.
The SEC's complaint further alleges that as Essex's finances deteriorated, the company resorted to frequent Ponzi-like payments, paying interest and principal to existing Essex investors with funds raised from newer investors. At the same time, Iannelli allegedly paid himself millions of dollars in bonuses and siphoned millions of dollars out of Essex through interest-free loans with no maturity date. According to the SEC, Iannelli personally owes the company over $6.4 million.
The regulator has filed a legal complaint in the US District Court for the Central District of California, and is seeking repayments, financial penalties and injunctions against both Iannelli and Essex. The SEC has also requested emergency action, including a preliminary injunction, an asset freeze, and the appointment of a receiver over Essex.