(Associated Press) The owner of a Miami-based payday loan company bilked hundreds of investors out of millions of dollars and repaid others with money he acquired from a Ponzi scheme, according to a newspaper report and federal regulators.
About 500 investors, many from South Florida’s Venezuelan American community, were taken in by Efrain Betancourt Jr.’s sales pitch of high-interest returns on their investments in his short-term loan operation Sky Group USA, the Miami Herald reported.
The Securities and Exchange Commission in Miami filed a lawsuit against Betancourt, 33, and his company in September, the report noted. The agency accuses Betancourt of committing securities violations in a scheme that authorities describe as “affinity fraud.”
In addition to the SEC complaint, a half-dozen other lawsuits and arbitration cases have been filed against Betancourt, according to the newspaper. He has not been criminally charged.
Betancourt spent a portion of the $66 million raised from promissory notes on a lavish lifestyle that included a Miami waterfront condo and a wedding to his fourth wife in Monaco, the SEC complaint charges. It also accuses him of transferring money to his ex-wife and friends and of using at least $19 million from a Ponzi-style scheme to make interest payments to some investors to keep them at bay.
The SEC complaint says Sky Group and Betancourt falsely told investors that the company would use investors’ money solely to make payday loans and cover the costs of such loans. They were promised annual rates of return as high as 120% on the notes.
“We continue to caution investors to be wary of any investment that promises returns that are too good to be true,” Eric I. Bustillo, director of the SEC’s Miami Regional Office, told the Herald.
The SEC is seeking permanant injunctions and financial penalties.
The scheme lasted from January 2016 to March 2020, just before the coronavirus pandemic began, according to the complaint, which says that when countless borrowers defaulted on their payday loans, Sky Group incurred a severe cash-flow problem and was unable to make interest payments on investors’ promissory notes.
Court records and legal documents state that Betancourt also falsely claimed to have law and computer engineering degrees in the United States.
Betancourt repeatedly invoked his Fifth Amendment right against self-incrimination during a deposition earlier this month with a lawyer representing former clients, the Herald reported. In a deposition with the same lawyer in May, he did admit that he didn’t have law and computer engineering degrees in the United States. But he insisted his payday loan business was legitimate, and called the investors “lenders” who were involved in financing short-term, high-interest loans, which he called “business transactions.”
“I made it very clear that they were investing into a payday portfolio,” Betancourt told attorney Rick Diaz.
In a motion to dismiss the complaint, Betancourt’s defense attorney Mark David Hunter argued that promissory notes are loans, not securities, such as stocks and bonds. Therefore, Hunter said, Betancourt and Sky Group did not break the law when they failed to pay back the lenders.
Diaz described Betancourt as a “mini-Madoff,” a reference to the late New York financial adviser, Bernard Madoff, who ran the biggest Ponzi scheme in U.S. history.
“I’ve handled and deposed and defended Ponzi schemers over the years,” he told the Herald. “Efrain Betancourt is the smoothest, cruelest and most arrogant, selfish and narcissistic of them all.”
Diaz’s client Andres Zorrilla told the newspaper he became suspicious when Betancourt wouldn’t take his calls and ignored his emails when he tried to withdraw $30,000 from his investments in the company to help cover the costs of his mother’s medical expenses. One of his emails included a photo of his mother showing the surgical stitches from brain surgery.
“The guy was just stealing money,″ said Zorilla, 38, who added that he also referred his wife, her brother and several other business associates to Betancourt’s company. All together, Zorrilla and his immediate family invested $150,000 in the company. They received some interest payments, but lost all of their principal.
“He made a lot of money and went a little crazy with the money,” Zorrilla said.