A Pleasanton man has been implicated in a $40-million Ponzi scheme by the U.S. Securities and Exchange Commission.
In court documents filed Wednesday, the commission alleges that Kenneth Kenitzer, 66, of Pleasanton, worked with Anthony Vassallo, 29, of Folsom, Calif. to orchestrate the fraud. The SEC said in a complaint that the two men, who are president and vice president of Folsom-based Equity Investment Management and Trading, Inc., raised more than $40 million from 150 investors between May 2004 and November 2008.
The commission said Vassallo told investors, many of whom he met through in his religious community, that he had a proprietary computer software program that allowed him to buy and sell stock options and generate returns of 3.5 percent per month with little risk of loss. Kenitzer reportedly posted false trading results on EIMT's website and distributed phony investment reports to investors leading them to believe the company was achieving consistent, positive returns, according to the SEC complaint.
Larry McColm, who said he's known Kenitzer for some time, said he's surprised at the allegations.
"I've known him for 15 years and I never knew him to be a fraud or anything like that," McColm said. "That's really shocking because he's been an upstanding guy for a long time around here."
The SEC said many of the investors in the scheme were members of Vassallo's religious community. Reached Friday, representatives with the SEC said they couldn't comment on the religious affiliation.
Vassallo grew up in Pleasanton, one of five children in his family. He was a star athlete at Foothill High School, where he graduated in 1997, according to school records. ABC 7 News has reported that Vassallo graduated from Brigham Young University. Kenitzer is a member of the Church of Jesus Christ of Latter-day Saints in Pleasanton, McColm said.
Court documents paint Vassallo as the leader in the scheme and Kenitzer as the one aiding and abetting.
"Over time, Vassallo used different names to describe his investment scheme," court records state.
"Vassallo held himself out to investors as being responsible for EIMT's investment strategies and trading decisions," the complaint goes on to say.
The complaint alleges that the two men went above and beyond to disguise their actions, even when EIMT executives began asking questions.
Kenitzer has lived in Pleasanton for over 30 years and raised six sons with his wife here, McColm said, adding that he wonders if Kenitzer got swindled himself. He said he didn't appear to have any financial troubles.
"I've never known him to be involved in anything shady like that, so that's why I'm wondering if he got snookered by this kid (Vassallo)," he said.
McColm said he's had little contact with Kenitzer since 2004, when Kenitzer left McColm's commercial brokerage company, Sperry Van Ness.
"He's had a good career in the high tech world in Silicon Valley," McColm said, adding that he retired from the industry in 2003.
"He worked with me for two years," he said. "His license was with me, up until 2004. He was approved to the department of real estate. He had no criminal record. It's just out of character."
Tracey Davis, a spokeswoman with the SEC, said she can't comment on exactly when the investigation into the alleged Ponzi scheme began.
"We can't comment on when our investigation began, but what I can say is we did receive information at least by last month, by February," she said. "We did receive a tip."
The SEC has sought relief from the court system, Davis said, including a temporary restraining order against Vassallo, Kenitzer and EIMT as well as a preliminary injunction against Vassallo and Kenitzer. With his consent, Vassallo's assets have been frozen, she added.
So far, the SEC has located one bank account in Redding, Calif., managed by Vassallo, containing $1.2 million, but the commission continues to investigate where the rest of the money is, said Attorney Monique Winkler.
The Internal Revenue Service, the U.S. Attorney's Office and the Federal Bureau of Investigation are all working on the case in assistance with the SEC. Representatives with the IRS and the U.S. Attorney's Office said they couldn't comment on the investigation.
A message left at Kenitzer's home was not returned.
To view the SEC complaint, click here