SEC charges former GunnAllen and Questar broker with fraud in $250M Ponzi scheme

Frank Bluestein ‘lured elderly investors into refinancing the mortgages on their homes,' regulator alleges

The Securities and Exchange Commission today charged Frank Bluestein with fraud for allegedly being the single largest salesperson in a $250 million Ponzi scheme that collapsed in August 2007.

According to the SEC's complaint, from 2002 to 2007 Mr. Bluestein was responsible for soliciting about 800 investors who invested $74 million into the scheme, which allegedly was operated by Edward May and his company, E-M Management Co. LLC.

In November 2007, the SEC charged Mr. May and his firm in connection with the scheme, which allegedly centered on phony Las Vegas casino and resort telecommunications deals.

Mr. Bluestein was affiliated with Questar Capital Corp. from 2000 to 2005, and then moved to GunnAllen, where he was an affiliated rep until October 2007, a few months after the Ponzi scheme collapsed, triggering a number of investors' arbitration complaints against GunnAllen and Questar.

The SEC complaint, however, mentions neither firm, saying that Mr. Bluestein “did not sell the E-M securities” through a broker-dealer, and that the offerings did not appear on client statements. However, the firms through which he worked “provided the E-M Offerings with an aura of legitimacy and engendered trust from potential investors.”

Mr. Bluestein “lured elderly investors into refinancing the mortgages on their homes,” the SEC alleged, and he conducted numerous seminars to find new investors. At the seminars, Mr. Bluestein would often ask attendees who already invested in the E-M offering if they had “received their Ed May checks?” or “How do you like those Ed Mays?”

The seminars were often held in California and Michigan, the SEC said. Mr. Bluestein was based near Detroit. Mr. Bluestein allegedly told investors that the investments were low-risk, and Mr. May coordinated contracts with hotels for the installation of equipment such as televisions and gaming consoles. Mr. Bluestein's due diligence for the deals was shoddy and incomplete, according to the SEC complaint.

Mr. Bluestein also misled investors about the compensation he received from the offerings, the SEC charged. On top of the $1.4 million in disclosed compensation, he allegedly received $2.4 million in commissions from Mr. May and E-M Management.

more at http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090928/FREE/909289982/-1/RSS02&rssfeed=RSS02