In what lawyers for the Securities and Exchange Commission described as a case that "presents an emergency," the U.S. regulator moved to shut down a Miami-based company for allegedly "fraudulent" activity regarding the company's invoice financing scheme in Brazil.
Reports on Tuesday (June 7) said the SEC has targeted Providence Financial Investments, which reportedly raised $64 million from 420 investors over the last five years.The U.S. investors provided funds for the firm to purchase accounts receivable in Brazil.
But the securities were not registered with the SEC, and the brokers selling them to investors were not registered, reports said.
The SEC said in its court filing that Providence Financial Investments can't account for the funds it has collected, reports added.
A lawsuit was filed in federal court in Minneapolis on Tuesday, with Providence Financial Investments listed as a defendant. The head of financial advisory firm Infinity Income, Jeffory Churchfield, is also named as a defendant; his company reportedly acted as the broker that sold Brazilian accounts receivable to investors.
"Providence denies the allegations of fraud," said an attorney for the financial investment company in a statement provided to reporters. He added that the company "has cooperated with the SEC and worked to address the SEC's concerns."
Reports said Providence purchased outstanding invoices from SMEs in Brazil for a discount, providing those small businesses with immediate capital. Providence then bundled those debts into 12- or 24-month securities and sold them to investors with advertised fixed return rates of up to 13 percent, reports added.
The SEC said in its filing, however, that Providence and its brokers did not tell investors that brokers are paid a 6 percent commission when these securities were sold. At most, the regulator argued, two-thirds of investors' funds actually went to purchasing outstanding invoices from Brazilian SMEs.
Last year, Providence reportedly owed investors $64 million, yet affiliates held just $10.6 million in accounts receivable assets from Brazilian businesses.
The firm's "current financial situation appears extremely tenuous," the SEC stated.