A financial adviser who was barred from the industry over allegations he embezzled clients’ money is accused of defrauding investors again in a different scheme 30 years later.
Although the SEC banned David W. Schamens in 1992 from associating with any broker, trader, municipal stockbroker, RIA, or investment firm, he conducted seminars through a company called “TradeStream University” and introduced a product it called the “TradeStream Algo Fund” to retail investors in 2019, according to to the regulator’s complaint of March 7. Between the Algo Fund and at least four other investment vehicles and entities, Schamens defrauded 25 clients out of $6.8 million in a Ponzi scheme over the past eight years, federal prosecutors to say.
Schamens, a 64-year-old resident of Greensboro, North Carolina, now faces criminal charges of wire fraud, securities fraud and money laundering, as well as a civil rap of fraud and other violations. The case offers the latest example of the problem of so-called repeat offender bad actors who would have committed further fouls after being hit earlier in their careers, as well as “wandering brokers” who continue to operate under different registrations after losing one. Despite strong rhetoric from regulators and the industry about their crackdown on these bad actors and the mission to protect investors, the cases remain an ongoing issue.
“Unfortunately, recidivism in financial services fraud is all too common and often with tragic results. Very often the targets are vulnerable adults with limited assets and reduced physical ability,” Louis Straney, a fraud expert who owns a company called Arbitration Insight, said in an email. “A permanent regulatory suspension or ban closes only one channel for fraudulent activity. There are others, and bad actors are well aware of them.
It’s not possible to “stop liars from lying,” Straney added, but stronger education and prevention programs, tougher fines and penalties, and awareness among regulators that many investors do not master computers could reduce their harmful effects.
“This is not the first time that David Schamens has been accused by the SEC of misconduct and reminded investors to seek out potential advisers,” SEC New York Regional Director Richard Best said in a statement. declaration. “Before hiring someone to manage your money, investors should visit Investor.gov, where they can review potential advisers.”
What the regulator’s press release announcing the case failed to mention, however, was that the BrokerCheck File for Schamen which appears on its website for investors contains only a brief summary of the previous case on page 7 of its detailed report. The disclosure contains very few details about the case for investors who have made the decision to view Schamen’s file.
SEC officials did not respond to inquiries about alleged repeat misconduct and gaps in available information.
In the 30-year-old’s case, Schamens did not admit or deny the SEC’s allegations during settlement. An attorney for Schamens did not respond to requests for comment on the latest cases against him in federal court in Newark, New Jersey, where the Secaucus-based Algo fund and another entity “used by Schamens in the fraud” were located. , according to the SEC.
The SEC case involves the conduct of the Algo Fund and Schamens between February 2019 and this month, while the criminal case spans a period beginning five years earlier. Schamens directed the investors’ money towards vacations, a luxury car and a million-dollar house, as well as payments to previous victims and other uses that had nothing to do with the clients’ investments , according to federal prosecutors.
Investigators believe he sold investors on two different funds during the scheme. In the Algo fund, Schamens told them he would “pursue an algorithm-based equity trading strategy with the potential for high returns,” according to the SEC. Along with other entities he called “TD Trading LLC” and “TFG Trading LLC”, he convinced them to invest in short-term loans to day traders using the TradeStream platform who would pay fees guaranteeing independent profits of their transactions, according to the federal government.
Investors in the latter vehicles lost about $3.35 million, while those buying the limited partnerships offered by the Algo Fund lost about $3.45 million, according to federal investigators. Schamens had promised them annual returns of 12% to 30%, the criminal complaint states.
“Schamens concealed the fraudulent nature of the Algo Fund by providing investors with false account statements that showed large profits and providing them with a false letter from an auditing firm guaranteeing the good faith of the Algo Fund,” according to the statement. SEC complaint.
A federal judge released Schamens on $500,000 bond on March 8 ahead of his trial to face the charges, according to court records. According to the terms of his release, he is not allowed to promote or solicit others on “any investment vehicle or business venture”, open new bank accounts or compel others to set up new businesses. , indicates the surety document.