This Blog has often noted that “securities fraud comes in all shapes and sizes.” (E.g., here.) Though the alleged fraudulent scheme may differ, the types of schemes implemented tend to fall into one of the following (non-exclusive) categories: financial statement/accounting fraud; pyramid schemes; Ponzi schemes; pump-and-dump schemes; affinity fraud; promissory note fraud; Internet fraud; “microcap” stock fraud; and fraud concerning information about a company, its operations and future prospects (id.).

One of the frauds mentioned above – Ponzi schemes – occur all too often, notwithstanding regulatory efforts to stop such frauds.[1]

A Ponzi scheme is intended to give investors the false impression that their investment is profitable. In a Ponzi scheme, the fraudster/promoter pays early investors with money that the investor believes is the return on his/her/its investment. In actuality, the money used to pay the investor comes from the investor’s own principal investment dollars or the pooled investment dollars of subsequent investors. As previous investors are “paid” their investment returns, the fraudster/promoter seeks new investors to fund the payments being made.

Since Ponzi schemes need a steady supply of new investors to fund payments to early investors, Ponzi schemes ultimately collapse as the fraudster/promoter fails to lure enough new investors to cover the payments due to the prior investors.

Once the Ponzi scheme has collapsed, recovering funds can be extremely difficult, especially if all the funds were paid out to earlier investors or misappropriated by the fraudster/promoter.

In today’s post, this Blog looks at SEC v. Alexander, et al., Case No. 4:25-cv-00446 (E.D. Tex. Apr. 29, 2025), an enforcement action brought by the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) in which the defendants are alleged to have employed a Ponzi scheme that bilked 200 investors out of at least $91 million.

Between May 2021 and February 2024, defendants Kenneth W. Alexander II (“Defendant A”) and Robert D. Welsh (“Defendant B”) allegedly orchestrated a Ponzi scheme, with Defendant Caedrynn E. Conner’s (“Defendant C”) substantial assistance and participation, that raised at least $91 million from more than 200 investors in an unregistered securities offering. Defendants A and B allegedly operated the scheme, which they called the Vanguard JV Cash Program, through Vanguard Holdings Group Irrevocable Trust (“VHG”), a Texas common law trust controlled by Defendant A.

Defendants A and B allegedly promoted VHG as a highly profitable international bond trading business that held billions in assets. According to the SEC, they told investors that VHG or its affiliates would use investor funds to trade, or engage in other dealmaking, in the international bond markets. They also allegedly told investors that investments in VHG would have a14-month term, and that investors would receive 12 guaranteed monthly payments of between 3% to 6%, with the principal to be returned at the end of the 14-month term. In truth, said the SEC, VHG used investor funds – not profits from bond trading – to make these payments.

As part of their scheme, alleged the SEC, Defendants A and B offered investors the option, for an additional fee, to protect their investments from risk of loss through purported financial instruments that Defendants A and B called “pay orders”. According to the SEC, investors who purchased the pay orders were required to enter into “pooling agreements” with other investors and a purported fiduciary (the “Fiduciary”). The SEC alleged that the Fiduciary was owned and controlled by a longtime associate of Defendants A and B and acted at Defendant A and B’s direction at all relevant times. The SEC further alleged that, pursuant to the pooling agreements, in the event VHG failed to make the guaranteed monthly payments, the Fiduciary was responsible for liquidating the pay order and distributing the proceeds to investors. However, said the SEC, the purported protection offered by the pay orders and the Fiduciary was illusory. The SEC alleged that VHG’s bank records did not reflect the purchase of any pay orders, and the Fiduciary never attempted to liquidate them.

The SEC alleged that in July 2022, Defendants A and B authorized Defendant C, who was an early VHG investor and promoter, to create an investment program to pool funds to invest in the Vanguard JV Cash Program. According to the SEC, Defendant C operated this program (the “Benchmark JV Cash Program”) through Benchmark Capital Holdings Irrevocable Trust (“Benchmark”), a Texas common law trust that he controlled. According to the SEC, the Benchmark JV Cash Program was structured like the Vanguard JV Cash Program, including the pay order protection feature, except Benchmark generally promised even higher guaranteed monthly returns. The SEC alleged that Defendant C represented to Benchmark investors that their funds would be pooled to invest in VHG, and that the returns Benchmark received from VHG would fund the guaranteed monthly returns paid to Benchmark investors. Through Benchmark, said the SEC, Defendant C raised approximately $54.9 million from investors, more than $46 million of which he allegedly directed to VHG. According to the SEC, the Fiduciary also served as the purported fiduciary for Benchmark investors who purchased pay orders.

The SEC alleged that during all relevant times, VHG had no material sources of revenue. The SEC also alleged that Defendant A misappropriated millions of dollars of investor funds for his personal use and Defendant B received more than a million dollars of investor funds. According to the SEC, Defendants A and B misused investor funds by using them to make Ponzi payments to Vanguard JV Cash Program investors – i.e., using funds from earlier investors to make monthly payments to later investors – and to pay victims of another apparent scheme that they started before, and then operated in parallel with, the VHG Ponzi scheme. For his part, said the SEC, Defendant C misappropriated millions of dollars of Benchmark investor funds.[2]

According to the SEC, in or around February 2023, the VHG and Benchmark schemes began to collapse when VHG and Benchmark ceased paying the purported guaranteed monthly returns to nearly all investors. Throughout 2023, said the SEC, Defendants A and B made, and directed the Fiduciary to make, false excuses (such as blaming banks and attorneys) for VHG’s failure to make the monthly payments. Defendant C allegedly repeated, and directed others to repeat, many of the same false statements to Benchmark investors. The SEC alleged that these statements had the effect of prolonging the Ponzi scheme because Defendants continued to solicit new investments and to encourage existing investors to roll over their principal to new l4-month terms, rather than withdraw their funds as their investment terms expired. Ultimately, the SEC claimed that the VHG and Benchmark schemes resulted in tens of millions of dollars of investor losses.

Commenting on the complaint, Sam Waldon, Acting Director of the SEC’s Division of Enforcement, said: “As we allege, the defendants conducted a large-scale Ponzi scheme that caused devastating losses to investor victims, while [Defendants A and C misappropriated millions of dollars of investor funds. We remain unwavering in our commitment to hold individuals accountable for defrauding investors.”

The SEC’s complaint (here),[3] filed in the U.S. District Court for the Eastern District of Texas, charged defendants with violating the antifraud and registration provisions of the federal securities laws. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against each of the defendants.

A copy of the press release announcing the enforcement action can be found here.