Commission Files a Ponzi Scheme/Offering Fraud Case

Ponzi schemes and offering frauds are among the most prevalent type of cases filed by the Commission. The actions usually follow similar patterns. Typically, in a Ponzi scheme the shareholder purchases interests in either a firm with no assets or that may not exist. In an offering fraud the investors generally acquire shares in return for his or her investment but there is often little or no actual money or assets from which the promised returns can be paid. The Commission’s latest case in this area has a mix of elements, SEC v. Rhew III, Civil Action No. 1:24-cv-00771 (M.D.N.C. Sept. 25, 2024).

Named as Defendant is William Rhew, a resident of North Carolina and the sole owner of Chadley Capital. He is also the president of Chadley Capital LLC. The firm recently consented to an involuntary bankruptcy. It is not registered with the Commission. Chadley Management Inc., d/b/a Spartan Safe, operates retail stores in several states. It specialized in selling gun safes.

Beginning in November 2017 Defendant solicited investments using notes called “Subordinated Debt Offerings,” issued by Chadley Capital. Investors were guaranteed they would earn 18% to 24% returns. The funds would supposedly be generated from private investments in manufacturing debts. In fact, Chadey did not hold any interests in manufacturing firms.

Defendant operated the program essentially as a Ponzi scheme/offering fraud. As investor capital was generated, Defendant took the funds out. Investor money was used to purchase personal items for Mr. Rhew rather than make the promise investments. Nevertheless, investors were provided with account statements depicting their interests in the firm. The statements also supposedly reflected the increasing value of the so-called investments. Unfortunately for the investors, the account statements were fictitious, as were the investments. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26129 (Sept. 25, 2024).