SAN DIEGO—Stock broker Sunil Sharma of Carlsbad was sentenced in federal court today to 33 months in custody for stealing more than $6 million from local investors by falsely claiming their funds were safely placed in conservative investments when, in reality, he was pursuing a risky day trading strategy that ultimately turned into a massive Ponzi scheme.
“You have not only destroyed the lives of the people who appeared in court today, but the lives of hundreds of others who make up their extended family,” said U.S. District Court Judge John A. Houston during the sentencing hearing.
As detailed in court papers, Sharma covered up his massive trading losses by continuing to falsely tell investors that their investments were doing well. Among other things, he would send investors monthly or quarterly statements that falsely reflected that their investments were generating the promised returns. Sharma admitted that even while reassuring investors, he diverted approximately $2.5 million in investor funds for his own personal use, including: (1) approximately $700,000 towards the down payment of a $2 million home off Artesian Road in San Diego; (2) approximately $12,000 for a cruise in the Mediterranean; and (3) for leasing a Mercedes SL and a BMW.
As revealed in court documents, Sharma was a Series 7 licensed broker, who had worked for Merrill Lynch, AG Edwards, and as an independent broker for Raymond James. In 2000, Sharma moved to San Diego where he continued to practice as an independent broker. Due to the market crash that followed September 11, 2001, Sharma and his clients lost a substantial amount of money. As a result, Sharma voluntarily gave up his license to act as a securities broker.
After relinquishing his broker’s license, Sharma began to work in the insurance industry. In 2002, Sharma sold insurance from his business in Rancho Bernardo. He also began teaching seminars highlighting various types of insurance and annuities which could be purchased by his clients.
In 2007, Sharma set up Gold Coast Holding, LLC (“Gold Coast”) as a vehicle to trade options and initially funded the company with approximately $50,000 of his own money. After experiencing a bit of “beginners luck” he began telling his insurance clients that they could make better returns if he could “day trade” their money. Recognizing that his customers would not give him money for risky options trading, he lied to them and falsely stated that Gold Coast was an extremely safe way to earn a monthly retirement income because their money was to be: (1) part of a diversified portfolio; (2) pooled with many other investors; (3) used to buy bonds from emerging markets in Brazil, Russia, India, and China (“BRIC”); and (4) managed by Goldman Sachs. Sharma guaranteed investors a rate of return (typically between 6%-7%) for two to three years and urged his clients to liquidate their retirement accounts and annuities based upon the safety of his investment scheme.
From the outset, Gold Coast (and later a second company he established, Safe Harbor Tax Lien Acquisitions) exclusively used the money for day trading options. Between January 2008 and November 2014, Sharma raised $8.36 million from 32 different clients using these two companies. In order to attract new investors, Sharma paid $2.12 million in “returns” to old clients from funds generally derived from the contribution of later investors.
For example, of the approximately $3.5 million he raised from investors in the first two years of day trading, Sharma was left with only about $250,000 by the end of 2009. As a result, Sharma turned Gold Coast into a classic “Ponzi scheme” by paying earlier investors their guaranteed rates of return with approximately $5 million in new funds solicited from later investors.
Prior to the investment scheme collapsing completely, Sharma stopped trading option spreads and switched over to purchasing straight “call” and “put” options. It was Sharma’s hope that adopting this new strategy would allow him to recoup all of his investment losses. Once again, however, Sharma’s strategy proved disastrous. Although he was able to make his December 2014 monthly payout to investors, he ran out of funds in January 2015.
United States Attorney Laura E. Duffy acknowledged that this Ponzi scheme was a bit harder to detect than usual as Sharma did not promise his investors outlandish returns. Nevertheless, she warned all investors to ensure that individuals soliciting money have appropriate licenses and audited financial statements. “All investors—especially when they are dealing with their retirement savings—must exercise due caution before turning over money even to long-time friends or else what appears to be a safe harbor might turn into a ship wreck.”
“Mr. Sharma engaged in an elaborate Ponzi scheme to steal millions of dollars from people who trusted him with their life savings,” said FBI Special Agent in Charge, Eric S. Birnbaum. “Today’s sentencing makes it clear that the FBI and U.S. Attorney’s Office will work together to identify, disrupt and hold accountable those individuals that are involved in sophisticated financial fraud schemes that steal money from the American public.”
Case Number 15cr1396 Sunil Sharma Age: 68 Carlsbad, CA
CHARGE: Wire Fraud, in violation of 18 U.S.C. § 1343. Maximum Penalties: 20 years’ imprisonment, $250,000 fine or twice the pecuniary gain or loss resulting from the offense, restitution.
AGENCY: Federal Bureau of Investigation Follow the FBI on Twitter