SEC Charges Larry Polhill with Investment Fraud

SEC v. Larry R. Polhill, Case No. EDCV13-1729 MRP (SPx) (C.D. Cal.).  On September 24, 2013, the SEC announced charges against Larry Polhill for allegedly defrauding hundreds of investors who bought promissory notes believing they were secured by collateral.  According to the SEC, Polhill used his company American Pacific Financial Corporation (“APFC”) to buy and sell real estate and distressed assets.  To raise money, he offered securities in the form of unregistered promissory notes that he claimed would generate interest of 5 to 17 percent per year.  Polhill told investors the notes were secured, but in reality, the collateral either did not exist or was impaired.  The SEC alleges that Polhill also told investors that they could invest in APFC-sponsored funds that pooled investor money to make loans to APFC.  The company made interest payments for about 20 years.  As a result, Polhill was able to get more and more investors.  APFC made more substantial investments in distressed assets by buying companies out of bankruptcy.  Although some of APFC’s investments performed well, most failed and Polhill did not disclose the failures to investors.  Although APFC was running out of money, Polhill kept up the appearance of a sound company by sending out newsletters and paying select investors.  APFC filed for bankruptcy, and in its filing, it claims to owe investors almost $160 million.  Polhill’s securities offerings were not registered with the SEC.  Polhill agreed to settle without admitting or denying the charges.  He consented to entry of an order enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 10(b) and Rule 10b-5 of the Exchange Act.  The order will also permanently bar him from acting as an officer or director of any public company.

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