Federal judge finds for SEC in Vail Ponzi scheme
Court orders $2.9 million to be turned over to the government
A U.S. District Court judge in Denver last week ordered a former Vail widow to forfeit more than $500,000 in a U.S. Securities and Exchange Commission case against her late husband’s investment fund, which the SEC deemed “a securities fraud Ponzi scheme.”
The order handed down by Senior Judge Marcia Krieger on Feb. 7 found in favor of the SEC and ordered Carolyn Anderson to disgorge $506,221.86; her late husband Michael Anderson’s investment fund, End of the Rainbow Partners, LLC, was ordered to disgorge $1,715,594; the End of the Rainbow Foundation was ordered to disgorge $247,635; and Seaoma Consulting was ordered to disgorge $402,465.17.
In total, the judge ordered the repayment to the SEC of $2,871,916 in ill-gotten gains from the late Michael Anderson’s fraudulent securities scheme. Michael Anderson committed suicide by carbon-monoxide asphyxiation in his Vail garage in February 2017, just as SEC investigators were closing in.
“Mr. Anderson diverted a considerable portion of investor funds — more than $2 million of the $5.3 million invested in Rainbow — to his own benefit or to Ms. Anderson and her creditors,” the court order reads, although it also makes clear Carolyn Anderson is not accused by the SEC of participating in the scheme. A previously filed lawsuit by defrauded investors from Florida had accused Ms. Anderson of being a conspirator in her late husband’s fraud scheme, but that suit was voluntarily dismissed after the SEC filed its lawsuit.
Michael Anderson founded End of the Rainbow Partners as an exclusive private investment fund, claiming he was a successful retired investment guru. He promised the investment fund “would return handsome rewards to investors. Investors were told that a portion of Rainbow’s trading gains would be directed to the Foundation, a non-profit charitable organization founded by Ms. Anderson,” according to the judge’s ruling.
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“In reality, Rainbow was little more than a securities fraud Ponzi scheme through which Mr. Anderson falsely claimed trading gains, distributed fabricated monthly account statements to investors, and used incoming investors’ funds to pay redemption requests by existing investors,” the order adds.
“Payments to or for the benefit of Ms. Anderson were made either directly or through the Foundation and Seaoma, an entity through which Ms. Anderson provided ministerial work to Rainbow,” it continues.
In November of 2017, Carolyn Anderson, who now lives in Florida with the couple’s two children, was named by the SEC as a “relief defendant” — along with the Foundation and Seaoma — alleging they were “in possession of investor funds improperly diverted by Mr. Anderson, to which they had no legitimate claim.” That designation, if proven, allows the government to recover funds that are traceable to the fraud, ostensibly for the benefit of defrauded investor victims.
In September of 2018, Carolyn Anderson sought to unfreeze assets by claiming, in part, that the legal action had encumbered proceeds from the sale of her Buffehr Creek home in Vail as well as alimony and child support she claimed were owed to her before her remarriage to Michael soon before his death.
The court denied that motion, so Carolyn Anderson then filed an “emergency motion” to unfreeze her assets, claiming she was swindled out of $1 million she had invested in her husband’s fund and that she had bought the Vail home with her own untainted funds. In Nov. 2019, a magistrate judge recommended that Anderson’s emergency motion be denied.
In last week’s order, the judge concluded Rainbow paid Carolyn Anderson nearly $450,000 between July 2014 and October 2016 and that she used those funds to pay the mortgage on her Vail home for three years.
“…The intermingling of Ms. Anderson’s ill-gotten gains from Rainbow with her personal funds prevented her from establishing her contention that the SEC misled the court about the source of funds used to obtain the Vail house,” last week’s order reads, adding that the undisputed evidence established that “… Ms. Anderson was not an investor in Rainbow and thus, not a victim of securities fraud.”
In finding for the SEC in the civil case, however, the court stated that “[t]he SEC brings claims against Ms. Anderson as a Relief Defendant; she is not accused of having personally engaged in or assisted any of Mr. Anderson’s own wrongdoing.”
Several of the 18 Colorado victims in Michael Anderson’s fraud scheme either declined the Vail Daily’s request for comment on the judge’s order or did not return emails or phone calls.
An SEC attorney in Denver and an SEC public information officer in Washington declined to comment on the case beyond what was in the judge’s order, including a request for information on possible victim restitution. Similarly, Carolyn Anderson’s attorney, Gerald Houlihan did not return phone calls seeking comment.
Carolyn Anderson sued The Vail Daily and one of its reporters for defamation after the newspaper reported on the SEC’s case in November of 2017. In that story, the Vail Daily inaccurately reported that the SEC’s suit had accused Carolyn Anderson of being a participant in her husband’s scam rather than suing her exclusively as a relief defendant. Ms. Anderson never contacted the Vail Daily about the error prior to filing her lawsuit. Two other news outlets had made the same error, in articles published prior to the Vail Daily’s story.
Ms. Anderson also filed a separate libel case in Florida against two defrauded investors from Vail claiming that they mailed the Vail Daily article along with an accusatory flier to her neighbors in Ponte Vedra, Florida.
The two defamation cases are still being litigated.