Case Style: United States of America v. Sunil Sharma
Case Number: 3:15-cr-01396-JAH
Judge: John A. Houston
Court: United States District Court for the Southern District of California (San Diego County)
Plaintiff's Attorney: Phillip L B Halpern
Defendant's Attorney: Earll Pott
Description: SAN DIEGO, CA – Stock broker Sunil Sharma of Carlsbad pleaded guilty in federal court, admitting that he stole more than $6 million from local investors by falsely claiming their funds were safe through conservative investments when, in reality, he was pursuing a risky day trading strategy that ultimately turned into a massive Ponzi scheme.
According to his plea agreement, Sharma covered up the massive losses by continuing to falsely tell investors that their investments were doing well. He would send his investors monthly or quarterly statements that falsely reflected that their investments were generating the promised returns. Sharma admitted that even while reassuring investors, he diverted approximately $2.5 million in investor funds for his own personal use, including: (1) approximately $700,000 towards the down payment of a $2 million home off Artesian Road in San Diego; (2) approximately $12,000 for a cruise in the Mediterranean; and (3) for leasing a Mercedes SL and a BMW.
As revealed in court documents, Sharma was a Series 7 licensed broker, who had worked for Merrill Lynch, AG Edwards, and as an independent broker for Raymond James. In 2000, Sharma moved to San Diego where he continued to practice as an independent broker. Due to the market crash that followed September 11, 2001, Sharma and his clients lost a substantial amount of money. As a result, Sharma voluntarily gave up his license to act as a securities broker.
After relinquishing his broker’s license, Sharma began to work in the insurance industry. In 2002, Sharma sold insurance from his business in Rancho Bernardo. He also began teaching seminars highlighting various types of insurance and annuities which could be purchased by his clients.
In 2007, Sharma attended an “Investools” workshop that convinced him that he could make money trading stock options in a conservative manner. After attending the workshop, he set up Gold Coast Holding, LLC (“Gold Coast”) as a vehicle to trade options. Sharma initially funded Gold Coast with approximately $50,000 of his own money that he had made selling insurance. Utilizing a bull and bear spread analysis, Sharma experienced “beginners luck” and began generating profits of more than 10% on his investment by late 2007.
Due to the fact that his insurance clients were making very little money on their personal investments due to low interest rates, Sharma believed that they could make a better return (somewhere in the “neighborhood” of 5%-6%) if he could “day trade” their money and “pocket the difference.” Recognizing that his insurance customers would not have given him money for this venture, he lied to them and falsely stated that Gold Coast was an extremely safe way to earn a monthly retirement income because their money was to be: (1) part of a diversified portfolio; (2) pooled with many other investors; (3) used to buy bonds from emerging markets in Brazil, Russia, India, and China (“BRIC”); and (4) managed by Goldman Sachs. Sharma guaranteed investors a rate of return (typically between 6%-7%) for two to three years and urged his clients to liquidate their retirement accounts and annuities based upon the safety of his investment scheme.
Although Sharma initially planned on buying BRIC bonds with half the investor funds and day trading with the other half, he never in fact purchased BRIC or any other type of bonds. Instead, Gold Coast Holding (and later a second company he established, Safe Harbor Tax Lien Acquisitions) day traded options using TDAmeritrade’s “thinkorswim” trading platform. Between January 2008 and November 2014, Sharma raised $8.36 million from 32 different clients using these two companies. In order to attract new investors, Sharma paid $2.12 million in “returns” to old clients from funds generally derived from the contribution of later investors. For example, of the approximately $3.5 million raised from investors in the first two years of day trading, Sharma – despite some early successes – was left with only about $250,000 by the end of 2009. As a result, Sharma turned Gold Coast into a classic “Ponzi scheme” by paying earlier investors their guaranteed rates of return with approximately $5 million in new funds solicited from later investors.
Prior to the investment scheme collapsing completely, Sharma stopped trading option spreads and switched over to purchasing straight “call” and “put” options. It was Sharma’s hope that adopting this new strategy would allow him to recoup all of his investment losses. Once again, however, Sharma’s strategy proved disastrous. Although he was able to make his December 2014 monthly payout to investors, he ran out of funds in January 2015.
United States Attorney Laura E. Duffy acknowledged that this Ponzi scheme was a bit harder to detect than usual as Sharma did not promise his investors outlandish returns. Nevertheless, she warned all investors to ensure that individuals soliciting money have appropriate licenses and audited financial statements. “All investors – especially when they are dealing with their retirement savings – must exercise due caution before turning over money even to long-time friends or else what appears to be a safe harbor might turn into a ship wreck.”
FBI Special Agent in Charge Eric S. Birnbaum commented, “Mr. Sharma's short term gains have resulted in long term losses for his victims. This case serves as a reminder to ask questions and conduct your own due diligence before investing your hard earned money with any broker or investment fund.” The defendant is scheduled to be sentenced by U.S. District Judge John A. Houston on August 24, 2015 at 8:30 a.m.
DEFENDANTS Case Number: 15cr1396
Sunil Sharma Age: 68 Carlsbad, California
Wire Fraud, in violation of 18 U.S.C. § 1343.
Maximum Penalties: 20 years’ imprisonment, $250,000 fine or twice the pecuniary gain or loss resulting from the offense, restitution.
Federal Bureau of Investigation
Outcome: Day Trading Broker Steals More Than $6 Million From Investors in Long Running Ponzi Scheme - Admits lying to investors when “good luck” ran out while speculating in risky stock options schemes with his companies Gold Coast Holding and Safe Harbor Tax Lien Acquisitions