SEC accuses Georgia advisor of fraudulently investing $5.1 million from clients

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An investment advisor is accused of fraudulently convincing two dozen clients to invest at least $5.1 million in two private unregistered funds with promises of growth and limited risk, according to a Securities and Exchange Commission complaint.

John Robert Jones Jr., of Carrollton, Georgia, is said to have violated multiple sections of the Securities Act, the Advisers Act, and the Exchange Act.

Jones founded and controlled two private unregistered funds that were Delaware limited partnerships formed in December 2016 and August 2017, according to the complaint.

He allegedly started telling potential investors in the fall of 2017 that the investor funds were protected. He also said the investors’ principal was insured and his investment strategy was created with a national financial organization, the SEC complaint alleges.

These alleged misrepresentations gave investors the impression that the investment opportunities would be profitable and relatively safe.

Jones’ alleged scheme collapsed in December 2018 after his trading strategy and a downturn in the stock market caused huge losses for his clients. Jones is accused of exposing investors to an average loss of $2.6 million, or 57%. He closed the two investor funds in late December 2018, according to the complaint.

In January 2019, Jones told his investors that the two funds had closed the month prior due to stock market volatility, interest rate and dividend decreases, and oil price declines, the SEC complaint noted.

As managing member of each of the funds’ investment advisor, Jones indirectly collected management fees totaling $86,823 from September 2017 to December 2018, according to the complaint

Jones has worked sporadically in the investment industry for 15 years. He was most recently associated with Regalia Financial Advisor, a Florida limited liability company that administratively dissolved in September 2019.

There’s the possibility for criminal prosecution in this case, says Benjamin Edwards, associate law professor at the William S. Boyd School of Law.

Frauds like this have happened for decades, he says.

“It's one of the things our securities laws are designed to protect against, but there's just an enormous amount of it out there still,” he says.

Anytime clients can’t verify what’s being promised, Edwards says, it’s an opportunity for fraud.

It’s a relatively easy scheme to lie and make deceptive statements to get people’s money based on false assertions. Most Americans are financially unsophisticated with a limited understanding of the market and could find themselves in similar situations, Edwards cautions.

The most troubling aspect of the case is that the alleged fraud happened 2½ years ago, yet charges are just being levied now, says veteran securities attorney Bill Singer, of Herskovits PLLC in New York City.

Jones’ alleged actions aren’t particularly advanced, Singer says, comparing him to a miniature version of Bernie Madoff, as Jones made up a “bunch of nonsense” that when people examine more closely doesn’t hold up.

Therefore, Singer suggests, clients need to ask more questions about advisors’ handling of their money and where their investments are going.

“This type of case demonstrates that the average investor doesn’t do his or her due diligence. Somebody could have sat down, smoked a joint and come up with this idea. And that's about all that's necessary,” he says.

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