A federal district court in Connecticut has entered final judgments pursuant to agreements between the SEC and three defendants—David Haddad, Trafalgar Square Risk Management, LLC, and New England RE, LLC—in a case alleging that Haddad deceived investors into investing in Trafalgar and New England RE by representing that he would use their investments to grow these businesses, when in reality he used those investments to fund his own lavish lifestyle and pay off earlier investors.
According to the SEC’s complaint, Haddad created Trafalgar in 2009 and held it out to be, variously, “a stop-loss insurance sales underwriting consulting and marketing firm and a private investment firm that aggregates funds to invest in entities including marketing firms, managing general underwriters, third party administrators, and reinsurance companies.” The SEC alleged that, over the next seven years, Trafalgar took in commissions and fees that far exceeded its legitimate business expenditures, that Haddad spent Trafalgar’s cash to pay his personal expenses, and that, when this spending outpaced Trafalgar’s income, Haddad began raising money from investors to make up the difference. The SEC alleged that Haddad misled investors by falsely claiming that he would use their money to grow Trafalgar’s business, failing to tell them that he would be spending their money on his personal expenses and promising high returns that the business could not support. The SEC further alleged that Haddad created New England RE in 2014, purportedly to operate as a reinsurer that would market, underwrite, and bind stop-loss insurance coverage to self-insured employers, but actually as a vehicle for soliciting investments that he could use to pay off investors in Trafalgar and to finance his personal expenditures. The SEC claimed that Haddad and the two entities violated section 17(a) of the Securities Act and section 10(b) of the Exchange Act by deceiving investors through false statements and omissions into investing in Trafalgar and New England Re.
The three separate final judgments—with respect to New England Re, Trafalgar, and Haddad—were entered pursuant to the consent of the SEC and each of the defendants, with defendants neither admitting nor denying the factual allegations contained in the complaint. Per those judgments, defendants are permanently restrained from further violating the securities laws and from soliciting investments in securities without providing written disclosures regarding their “prior regulatory history,” and they must pay $1,097,257.07 in disgorgement, prejudgment interest, and civil penalties.
S.E.C. v. Haddad, et al., Civil Action No. 3:18-Cv-00055 (D. Conn. January 18, 2018)
This post written by Jason Brost.
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