by Howard Haykin

The SEC charged former registered rep Steve Pagartanis with defrauding long-standing brokerage customers out of $8 million in an investment scam conducted outside of his broker-dealer offices. The Suffolk County District Attorney’s Office today filed criminal charges against Pagartanis.

BACKGROUND INFO.    Steve Pagartanis, 58, was a broker with 28 years’ experience with 14 firms. He most recently was associated with Lombard Securities (2017-2018) and Cadaret, Grant (2012-2017 and 2006-2011). He was barred from the industry in April 2018 after refusing to cooperate with a FINRA investigation in connection with allegations that he made fraudulent misrepresentation to customers and misappropriated customers' funds. At the time, Pagartanis had a clean disciplinary record.

SEC FINDINGS.    From 2013 to at least February 2018, Pagartanis defrauded at least 9 retail investors out of some $8 million by soliciting and selling them securities using false and misleading statements. Pagartanis had long-standing relationships with these investors, most of whom were retirees. They all had been his customers at Lombard and other broker-dealers.

According to the SEC:  

• Pagartanis told investors their funds would be invested in either (i) common stock of Genesis Land Development, a Canadian land development company traded on the Toronto Stock Exchange; or, (ii) a private land development company. 

• He promised that their funds would be safe and guaranteed monthly interest payments on the investments ranging from 4.5% to 8%.

• He directed investors to write checks payable to "Genesis," the name of the LLC for which Pagartanis is the sole owner; those checks were deposited into the bank account of “Genesis I Holdings, LLC.”

• Pagartanis never invested the funds, but instead transferred most of the funds to his personal bank account and to other entities he controlled; around $1.8 million was used for monthly interest payments to investors.

• As of the end of February 2018, Genesis I's bank account balance was around $8,000.

• Pagartanis concealed the scam by creating fictitious account statements reflecting ownership interests in the land development companies. 

• In early 2018, Pagartanis' scheme unraveled when he stopped making monthly payments to investors and ignored requests to return their investments.

POSTSCRIPT.    The Pagartanis case prompted the SEC’s Office of Investor Education and Advocacy (OIEA) and its Division of Enforcement’s Retail Strategy Task Force (RSTF) to issue an Investor Alert educating investors about warning signs that a broker may be offering investments outside of the broker’s firm. 

Investor Alert:  IS YOUR BROKER SELLING YOU INVESTMENTS APPROVED FOR SALE THROUGH THE FIRM?

[For further details on this case, click on ... SEC Complaint.]