The SEC announced that it filed charges against providence-based investment adviser Anchor State Capital LLC (Anchor State) and its owner Christopher Aubin on May 15, accusing them of orchestrating a fraud scheme that misappropriated more than $2,500,000 from over 24 investors.

According to the SEC’s complaint, from 2023 to 2024, the defendants issued securities in the form of investment contracts, which would be used to finance short-term, high-interest loans that were secured by real estate.

Anchor State promised returns of 12% to 19% for investments lasting between one month and eight months and would repay the loans in the event of borrower default. However, most of those promised loans never even existed, the SEC stated.

Aubin also used his status as a former United States Marine to advertise his credibility and recruit participants, two of whom were also former marines, into the scam.

Investors misdirected

And in classic Ponzi scheme fashion, later investor contributions were allegedly paid back to previous investors, creating the impression of profitability. The SEC stated that while payments were pending, the defendants misdirected investors about the location of their funds and the reasons for delays, including by sending them doctored bank statements and fabricated loan agreements.

Instead, the allegedly ill-gotten gains were allegedly used to fund luxury hotel stays and extravagant purchases.

The scheme came to a halt in mid-2024 when investors sued the defendants in Rhode Island state court when Aubin failed to repay investment contracts that had reached their maturity date.

As of the filing of the SEC’s lawsuit, $2,000,000 in principal contributions were still missing, let alone the promised returns.

Rule violations

The SEC alleges that the defendants violated:

• Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder: Covering fraudulent activities in connection with the purchase or sale of securities.
• Section 17(a) of the Securities Act of 1933: Covering fraudulent conduct in the offer or sale of securities.

The SEC is seeking disgorgement of ill-gotten gains and civil penalties against the defendants.