The U.S. Securities and Exchange Commission has charged two founders of a medical insurer with operating a Ponzi scheme.
The SEC said Tuesday that by the time their scheme involving Dallas-based Global Corporate Alliance Inc. collapsed, Duncan MacDonald and Gloria Solomon had collected close to $10 million from at least 80 investors and returned about $2 million to them in the form of Ponzi payments.
The SEC charged in a lawsuit filed Tuesday in U.S. District Court in Dallas that Global Corporate’s chairman and president, Mr. MacDonald, and its chief administrative officer, Ms. Solomon, had each taken $1 million of investor funds and spent the remaining funds on various business-related expenses until the company’s accounts were left with a negative balance.
“MacDonald and Solomon spent the next year concocting various reasons to investors about why they could not make payments. Meanwhile, MacDonald was pursuing alternative means of financing the company and redeeming the investors, but no more money ever came,” said the SEC in its statement on the litigation.
“MacDonald and Solomon created fake monthly statements to falsely portray (Global Corporate Alliance) as a thriving health insurance company successfully enrolling thousands of premium-paying policyholders each month. In reality, they never had more than 40 policyholders, and half of those were GCA’s own employees,” said David Peavler, associate director of the SEC’s Fort Worth, Texas, regional office, in the statement.
Securities fraud charges
The SEC is charging Mr. MacDonald and Ms. Solomon with securities fraud and conducting an unregistered securities offering while acting as unregistered broker-dealers. The lawsuit seeks relief for investors including disgorgement of ill-gotten gains with prejudgment interest, financial penalties and permanent injunctions.In a parallel action, the Dallas-based U.S. Attorney’s Office for the Northern District of Texas has filed criminal charges against Mr. MacDonald and Ms. Solomon, the SEC said.
The SEC said Mr. MacDonald originally set out in 2008 to start an insurance company that would market medical insurance to large groups and tried unsuccessfully to find a single investor to fund the company’s initial capital needs.
He then turned to individual investors who could contribute smaller amounts. Meanwhile, the company hired employees who heavily marketed the program and secured a sponsorship agreement when it purchased the Dallas-based North American Consumer Alliance, a 40-year old association group and Texas nonprofit corporation, according to the SEC statement.
Contact information for Ms. MacDonald and Ms. Solomon was unavailable.