SEC Eyes Trade Finance FinTech For Ponzi Scheme Activity

International Investment Group (IIG), which provides loans to small and medium-sized businesses (SMBs), lost its license after the U.S. Securities and Exchange Commission (SEC) revoked it for “a string of frauds,” according to the Global Trade Review.

IIG is an investment advisor to the Trade Opportunities Fund (TOF), the Global Trade Finance Fund (GTFF) and the Structured Trade Finance Fund (STFF). The company lets customers and investors participate and invest in diversified trade finance portfolios through investment options like collateralized loan obligations.

The company loans to organizations like commodities exporters in emerging markets like Latin America, and the loans are made up of structured trade finance credit facilities backed by the U.S. dollar. They generally take about 36 months to mature and are helped by a number of individual short-term transactions.

There has been an emergence of trade finance funds lately, as more and more investors look for ways to diversify their portfolios.

IIG is accused of selling fake loans to the tune of $60 million. It suffered a series of defaults, one on a $30 million loan to a coffee producer in South America and another $30 million from a seafood company.

The SEC alleged that IIG perpetrated a Ponzi scheme beginning in around 2007. It alleged IIG hid its losses in the TOF portfolio by taking troubled loans and overvaluing them, and then replacing the defaulted loans with fabricated “performing” loan assets. When it needed to have capital on hand to fulfill its redemption requests, the company sold the overvalued or fake loans to new investors in order to pay off the old ones.

The SEC said that by 2013, TOF was in serious trouble due to liquidity issues stemming from investor redemption requests and repayment obligations on loans the fund drew from international development banks. By 2017, the situation was practically untenable, and the SEC stepped in.

“This case shows that even sophisticated professional investors can fall victim to Ponzi schemes,” said Daniel Michael, chief of the SEC’s Complex Financial Instruments Unit.