The SEC enforcement division continues its retail investor – advisor focus, with another action centered on an unscrupulous investment adviser. In its most recent case a business that began essentially as a family office and grew into a public advisory was looted by its founder and adviser. SEC v. Lyons, Civil Action No. 1L19-cv-10785 (D. Mass. Filed April 22, 2019).
Defendant Eric Lyons and his firm Synchrony Capital GP LLC began as a family money manager with the funds placed in Synchrony Value Fund. For the first two years, beginning in 2012, the Fund only handled family money. Mr. Lyons, however, did not invest his capital in the Fund. Total investments were under $200,000.
In 2015 Mr. Lyons and his co-owner sold a 20% stake in the business to a third person. Over the next three years the partners and family provided financial and operational support for the Value Fund. Mr. Lyons was the only full time employee. He also managed the investments. Fees were paid from the investments to Synchrony Capital.
In 2017 accounts for the Fund discovered about $180,000 in payments to Mr. Lyons. In accord with the advice of the accountant Mr. Lyons executed appropriate promissory notes in favor of the other partners.
The Fund was opened to public investors following the resolution of the payments issue. About $2.1 million was raised from public investors. Included in that group was a Czech investor who put over $1.8 million into the Value Fund. The Czech investor, a representative of others, also worked out an arrangement with Mr. Lyons through which he obtained an interest in a new entity called Synchrony Capital Group which would serve as the general partner of the Fund. The new firm was entitled to management fees. Mr. Lyons also sold the Czech investor 50% of Synchrony Capital Group for $100,000. The operating documents for the new private partnership specified that investments would be in securities and placed with financial institutions and brokerage firms.
The Czech investor subsequently transferred $600,000 of his client’s money for investment in the Capital Partners Fund. Almost immediately, Defendants began to misappropriate the funds. In 2017 and 2018 about $320,000 was misappropriated from Capital Partners Fund.
Mr. Lyons began trading options. The market, however, moved against him. All of the investments for Capital partners Fund were wiped out. A negative balance of $380,000 as left. After Mr. Lyons told his partners of the losses, they abandoned the business.
Following the departure of the other co-owners Mr. Lyons formed the Synchrony Capital Global Macro Fund. Funds which had not been misappropriated from Value Fund were transferred in. While Mr. Lyons made efforts to raise sufficient capital from other investors to cover his unlawful acts, he was not successful. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 24458 (April 23, 2019).