Attorney General J. Joseph Curran Jr. said yesterday that his office had shut down a Ponzi scheme run by an Ellicott City man who solicited more than $12 million from more than 500 investors.
The Securities Division of the attorney general's office obtained a temporary restraining order against E. Robins Rich, 79, of Ellicott City and his company, Starboard Associates of Baltimore.
Baltimore Circuit Judge Evelyn O. Cannon ordered the assets of Starboard frozen and appointed a temporary receiver to take control of the company's assets.
Lucy Cardwell, an assistant attorney general who is handling the case, said people should be wary of obscure companies that solicit their investments.
"If it's not Legg Mason or one of those [other well-known companies], call us first," Cardwell said. "There are perfectly intelligent people who invest by word of mouth, and they're stuck. And we don't know about it until it's collapsed."
Rich could not be reached for comment. His listed telephone number has been changed to a nonpublished number, according to a recording.
Starboard investors thought they were putting their money into a combination of a money market account and a stock options trading program, only to learn that money coming in from new investors was being used to pay previous investors who wanted to withdraw funds, according to Curran's office.
Hans Schmidt, 75, of Owings Mills said he started investing with the Howard County man about six years ago.
"He was like a friend of the family," Schmidt said. "He talked like a minister and was always happy to explain to newcomers how he was investing money."
But about two weeks ago, Schmidt said, he asked Rich for a check that he said was about eight weeks late. When Rich suggested that Schmidt wait a few weeks, Schmidt demanded his check.
"Then he told me he had deceived people and inflated statements and that he didn't have any money left. I was in shock," Schmidt said.
Schmidt, who estimated his loss at hundreds of thousands of dollars, said he reported his experience to the attorney general's office, which pursued a case against Rich and Starboard Associates.
According to a complaint filed by Maryland Securities Commissioner Melanie Senter Lubin in support of the restraining order request, Starboard told investors that it pools their money in a fund -- at least 80 percent in a money market and up to 20 percent in stock options.
At most, Rich told investors, 20 percent of their money was at risk.
Rich, who attracted investors to his program often by word of mouth over 15 years, would start option groups at the beginning of each month, giving each group a name, such as Option Group January.
At the close of a certain period, generally 12 months, Rich would give investors statements showing the group's transactions, its option trades, profits or losses and interest from the money market account.
A typical pool might start with $1 million, with statements routinely indicating a return of 10 percent to 15 percent. Rich collected an administrative fee of 0.016 percent and a 10 percent share of the supposed profits.
Investment checks were made out to Rich, who deposited them into an account at Mercantile-Safe Deposit and Trust Co.
"In the last several months, it appears that most of the money coming into the Mercantile account from investors was used to pay other investors withdrawing funds from the options groups," Lubin said in her complaint.
Rich has used a brokerage account at Charles Schwab & Co., which has a balance in the tens of thousands of dollars.
"The end-of-the month balances in the Schwab account never approached the $12 million indicated on the option group statements given investors," according to the complaint.
Rich also "consistently and substantially" inflated option trades. He "never executed many of the trades he included on the statements he created," the complaint said.
Calling Rich's investment program at Starboard a "Ponzi scheme," Lubin said investors in recent months have had difficulty withdrawing money from their options groups. "Sometimes Rich has delayed payment; sometimes he has not paid at all."
Confronted by some of the 70 investors who have requests for withdrawals, Rich has told investors "there is no money," according to the complaint. "He has also admitted that for the past five years he has been falsifying the statements given investors at the close of each option group."
He allegedly told one investor he was taking in money every day.
"He told another investor that he might move to Florida and go into business there," the complaint said.
The Securities Division said Rich has violated state securities laws by offering and selling unregistered investments and by acting as an unregistered securities agent and investment adviser.
"By placing the company and Mr. Rich into receivership, we can trace the funds in the scheme and preserve the remaining assets for investors," Curran said in a statement.
Curran urged customers of Rich or Starboard to call 410- 576-7009 to help the continuing investigation.
Schmidt, whose losses have absorbed much of his life savings, said he is angry at Rich. "But I am actually more angry about my stupidity," Schmidt said. "Just because someone is friendly, that I would trust him with that kind of money."
Pub Date: 9/21/99