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SEC charges St. Louis-based private investment funds and their principal with fraud

The Securities and Exchange Commission today announced that it has filed charges and obtained emergency relief, including an asset freeze and the appointment of a receiver, against several St. Louis, Missouri private investment funds and management companies. The SEC alleges that Burton Douglas Morriss, the principal of these entities, misappropriated over $9 million of investor assets.

The SEC alleges that Morriss told investors that his private investment funds and management companies would invest their money in a portfolio of financial services and technology companies. However, investors were unaware that for the past several years, Morriss had been misappropriating their money to the tune of millions of dollars through a series of fraudulent transfers to himself and another entity he controlled. To conceal his fraud, Morriss later disguised these fraudulent transfers as personal loans.

According to the SEC’s complaint filed in federal court in St. Louis, Missouri, at various times between approximately 2003 and 2011, Morriss, his two private investment funds, MIC VII, LLC and Acartha Technology Partners, LP, and his management firms, Gryphon Investments III, LLC and Acartha Group, LLC, raised at least $88 million from at least 97 investors to invest in preferred shares or membership interests in the defendant entities. The defendants represented to investors that the investment funds would invest in early to mid-stage companies in the financial services and technology sectors.

The SEC alleges that unbeknownst to investors, for the past several years, Morriss has misappropriated investor funds through transfers from his companies to himself and another entity he controlled, Morriss Holdings, LLC, to pay for personal expenses, including, mortgage and alimony payments, payment of personal loans, pleasure trips, and household expenses. In an attempt to conceal his scheme, the fraudulent transfers that Morriss made to himself were recorded as “loans” on the defendant entities’ books. In fact, these transfers were never truly loans because Morriss did not intend to repay them at the time of his misappropriation. Moreover, the funds transferred to Morriss for his personal use were inconsistent with the disclosures contained in the offering materials provided to investors.