Carlsbad stockbroker pleads guilty to $6M fraud scheme
SAN DIEGO — A Carlsbad stockbroker pleaded guilty Monday to stealing more than $6 million from local investors through a risky day-trading strategy that ultimately turned into a classic Ponzi scheme.
Sunil Sharma, 68, admitted in San Diego federal court that he committed wire fraud through his financial manipulations, which hinged on covering up his clients’ extensive losses and continually claiming that their investments were doing well.
Sharma faces a maximum sentence of 20 years’ imprisonment, a $250,000 fine and restitution, according to prosecutors.
Sharma diverted about $2.5 million worth of his customers’ money for his own personal use, including some $700,000 toward the down payment of a $2 million home off Artesian Road in San Diego, $12,000 for a cruise in the Mediterranean and cash for leasing two cars, a Mercedes SL and a BMW, court documents state.
Sharma, a licensed broker who had worked for Merrill Lynch and AG Edwards, moved to San Diego in 2000, where he continued to practice as an independent broker.
Due to the market crash that followed 9/11, in which Sharma and his clients lost a substantial amount of money, the defendant voluntarily gave up his license to act as a securities broker.
Sharma then 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 conservatively. After attending the meeting, he set up Gold Coast Holding LLC as a vehicle to trade options.
Sharma initially funded Gold Coast with about $50,000 of his own money that he had made selling insurance, court documents state. Using a bull-and-bear spread analysis, Sharma was able to begin generating profits of more than 10 percent 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 they could make a better return if he could day-trade their money and keep the difference, according to prosecutors.
Recognizing that his insurance customers would not have given him money for such a venture, he lied to them, claiming that Gold Coast was an extremely safe way to earn a monthly retirement income.
Sharma guaranteed investors a rate of return for two to three years and urged his clients to liquidate their retirement accounts and annuities based upon the safety of his investment scheme.
Though Sharma initially planned on buying BRIC bonds with half the investor funds and day-trading with the other half, he never 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 a TDAmeritrade trading platform.
Between January 2008 and November 2014, Sharma raised $8.36 million from 32 clients using the two companies. In order to attract new investors, Sharma paid $2.12 million in supposed returns to clients from funds generally derived from the contribution of later investors.