IBF Securities

Disadvantages

• ✗Defendants including CFC and Fund VI committed fraud involving $189 million in debt securities from 1997 to 2002.
• ✗CFC and Fund VI are unregistered investment companies in violation of the Investment Company Act of 1940 (ICA).
• ✗Significant undisclosed related-party transfers of tens of millions of dollars between IBF Funds occurred to meet cash flow needs.
• ✗Interest payments to investors were substantially funded out of current and future offering proceeds, undisclosed to investors.
• ✗Loan losses were hidden through nondisclosure and improper accounting, materially overstating net income and returns by up to 50%.
• ✗Management fees included up to 5% administrative fees on offerings and up to 2% annual asset management fees to Hershon-owned affiliates.
• ✗CFC and Fund VI unlawfully engaged in affiliated party transactions prohibited by the ICA.
• ✗The IBF Funds never satisfied the minimum 300% asset coverage on debt securities as required by the ICA.
• ✗Offering materials misrepresented investment portfolio risks and performance, including false loan maturity and collateral coverage statistics.
• ✗False disclosures omitted that 40-60% of loans were non-income producing and that interest payments depended on fresh offering proceeds.
• ✗Financial disclosures used flawed accounting practices, ignoring GAAP requirements on related-party loan transactions.
• ✗Defendants operated with reckless disregard for full and truthful investor disclosures, misleading investors for years.
• ✗CFC and Fund VI ceased offering securities in January 2002 after raising substantial funds through misrepresented offerings.
• ✗Multiple violations were charged under Securities Act Sections 17(a), 10(b) Exchange Act, and ICA Section 7.
• ✗Court actions include asset freezes, trustee appointment, disgorgement of ill-gotten gains, and injunctions against further violations.