The SEC banned Barry Ziskin from the securities industry for failing to follow the investment objectives of a stock mutual fund managed by his firm, which ultimately lead to the fund’s liquidation in December 2010. Respondent Ziskin is the founder, president and sole control person of TFM, a New York corporation based in Mesa, Arizona. According to the SEC’s investigation, TFM managed the Z Seven Fund, Inc. or (“ZSF”), a mutual fund whose prospectus described it as a stock fund seeking long-term capital appreciation.
According to the SEC’s Order Instituting Administrative and Cease-and-Resist Proceedings, beginning in September 2009, ZSF invested in put options for speculative purposes contrary to the fund’s stated investment policy. TFM and Ziskin misled investors by misrepresenting in a shareholder report that the options trading was for hedging purposes. Over the course of fifteen months, Ziskin’s strategy caused $3.7 million in losses. By deviating from ZSF’s fundamental investment policy, Respondents breached their fiduciary duty to ZSF.
The SEC said, “Mutual fund advisers who deviate from their funds investment strategy and keep investors in the dark will be held accountable for their fraudulent actions.” Given Respondents’ financial condition and additional evidence, it was determined that TFM and Ziskin are unable to pay a civil penalty.
The SEC charged Claudio Osorio, a former Ernst & Young Entrepreneur of the year Award winner, with fraud. The SEC also charged Mr. Osorio’s company, InnoVida Holdings LLC, and Craig Toll, a certified public accountant, who served as InnoVida’s CFO. Claudio Osorio used InnoVida to allegedly raise approximately $16.8 million from at least five investors by offering and selling securities in the form of units and loan instruments in InnoVida. Mr. Osorio illegally used more than $8 million in investor funds to pay the mortgage on his Miami home, a loan for his Maserati automobile, a Colorado mountain retreat home, and country club dues. To persuade investors, Mr. Osorio, with the help of Mr. Toll, allegedly produced false pro forma financial statements that portrayed the company as having millions of dollars more in cash and equity than it actually did.
According to the Complaint, InnoVida’s purported business was the manufacturing of housing materials to withstand fires and hurricanes. Between March 2007 and March 2010, Mr. Osorio lured investors into InnoVida to privately finance the Company’s business. Defendants made material misrepresentations and omissions regarding InnoVida’s financial condition. Mr. Osorio made misrepresentations relating to (1) InnoVida’s share prices; (2) his personal investment in the Company; (3) a buyout agreement; and (4) the use of investor funds. The Complaint alleged that between April 2009 and January 2010, Mr. Toll created baseless pro forma financial statements which falsely portrayed InnoVida as a cash-rich company. For instance, the Company’s statements showed InnoVida’s cash and cash equivalents ranging from $35 million to $39 million, when in reality the Company’s bank accounts held less than $185,000 and approximately $2 million, respectively. Osorio and Toll used the false financial statements to lure new investors and solicit additional contributions from existing investors. To legitimize InnoVida, Mr. Osorio assembled a high-profile board of directors for the Company, including a former governor of Florida, a lobbyist, and a major real estate developer.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida charged Mr. Osorio and Mr. Toll criminally. The SEC’s Complaint seeks disgorgement, financial penalties, and injunctive relief against InnoVida, Mr. Osorio, and Mr. Toll, as well as an order barring Mr. Osorio and Mr. Toll from serving as officers or directors of a public company.