The New Jersey Bureau of Securities has filed a lawsuit against a Princeton couple alleging that the pair schemed to fraudulently sell investments in gas and oil projects to members of their social circle in the local community. The couple allegedly spent a significant portion of the investor funds on luxury vacations, country club payments, and other personal expenses.
Ford F. Graham, 55, a 1986 alumnus of Princeton University, allegedly raised more than $5 million through a series of loans and fraudulent sales of unregistered securities from unsuspecting individuals and investors located in at least five states, including fraudulently selling at least $1.9 million of unregistered securities to New Jersey investors.
At least three Princeton residents were among investors from at least five states who gave money to Graham and his companies.
In February of 2018, Graham, signed a consent judgment in the case, but then allegedly never followed through with the conditions that were stipulated.
Graham is the son of John J. Graham, one of the figures at the center of the Prudential Bache/Graham Resources scandal of the 1980s that was chronicled in the book “Serpent on the Rock,” written by New York Times best-selling author Kurt Eichenwald. At the time, the scandal was one of the largest to ever have hit Wall Street, with allegations that 340,000 investors had been defrauded out of $8 billion. Ford Graham and Katherine Graham both earned law degrees at Tulane University.
The lawsuit against Graham, his wife, and some of his business entities, filed in Mercer County Superior Court on Tuesday, alleges that between January of 2012 and January of 2014, Graham — often with the active participation of his wife, Katherine B. Graham — represented the unregistered securities to potential investors as low-risk, high-reward investment opportunities in gas and oil projects. But instead the couple allegedly misappropriated investors’ money for personal expenditures, transferred it to joint accounts in their names, used it to repay prior investors, and withdrew the funds in cash.
“Ford Graham and his wife allegedly used their social connections in the affluent Princeton community to lure investors into a Ponzi scheme that financed the defendants’ posh lifestyle of country clubs, private schools, and tropical vacations,” said New Jersey Attorney General Gurbir Grewal. “The bureau’s action today seeks to hold the defendants accountable for their actions and require them to return the ill-gotten funds to defrauded investors.”
Some neighbors and Princeton University alumni who are friends with Graham and his wife have reacted to the accusations with disbelief on social media and in comments. They say the couple would never act the way the lawsuit alleges because the Grahams are upstanding citizens who have coached sports teams, led Boy Scout troops, and contributed to the community in other ways.
The suit alleges that Graham and his wife, residents of Prospect Avenue, violated the state’s Uniform Securities Law by making false and misleading statements to investors in connection with the offer and sale of unregistered securities issued by Graham’s companies, including: Specialty Fuels Americas, LLC; Aries Energy Group Venture, LLC; CCC Holdings, LLC; and Rattler Partners, LLC. The suit alleges that the couple schemed to defraud investors, and unjustly enrich themselves with investor funds. Graham also acted as an unregistered agent in New Jersey.
Graham operated his limited liability companies in Alabama and Delaware. Four of the Delaware companies had their registrations canceled by the secretary of state for Delaware for failure to pay taxes, according to the lawsuit.
The unregistered securities sold by Graham and his companies included promissory notes, a purchase agreement for certain interests, and a profit participation agreement, according to the lawsuit.
Despite Graham’s representations that investor funds would be spent on specific oil and gas projects, he instead transferred the funds between the bank accounts of the different entities and a fifth company he controlled—Vulcan Energy International, L.L.C., according to the lawsuit.
A significant portion of the funds allegedly were then used to pay previous investors in a Ponzi scheme. The Grahams allegedly also used these funds for personal expenses, including: an Antigua vacation, payments to the couple’s country club, payments to their child’s summer camp and private school, purchases at upscale department stores, and numerous cash withdrawals.
“Investors who put up money were led to believe it was being invested in legitimate projects guaranteed to return a profit, but that was a lie,” said Paul Rodríguez, acting director of the New Jersey Division of Consumer Affairs. “We will not allow the defendants’ lies and deceit to go unchecked, nor will we allow New Jersey investors to be exploited in such an egregious manner.”
The complaint alleges that Graham,and his wife used social connections in Princeton to drum up sales in his scam investments, promising prospective investors up to twenty percent returns on their funds.
In January of 2013, Graham raised at least $1.5 million from one Princeton resident from the offer and sale of a security in the form of a four-percent, convertible secured promissory note, according to the lawsuit. Graham allegedly told the investor his company sought to purchase a controlling interest in Specialty Fuels Bunkering, a ship bunkering and fuel distribution company operating out of the Gulf of Mexico. The Grahams allegedly said they would invest another $500,000 of their own money to purchase a 52 percent interest in Specialty Fuels Bunkering, which allegedly had a $7 million to $9 million claim against British Petroleum deriving from a 2010 oil spill in the Gulf of Mexico. The Princeton investor was allegedly told by Graham that he would be entitled to 22.3 percent of the claim, which would provide an almost immediate return on the investment.
The investor wired the money to Graham, who then allegedly used some of the money to pay a second Princeton investor, and pay for personal expenses. Some funds were transferred to other bank accounts, including his mother-in-law’s bank account, according to the lawsuit. The suit claims that: $24,660 was withdrawn as cash from banks and ATMs; $1,765 was spent at retailers, including a department store, a hardware store, and a liquor store; an additional $376,882 was transferred from the SFA bank account to the VEI bank account; and $90,940 was transferred to Katherine Graham’s bank account and used for personal expenses. The expenses included: $16,945 paid to the Carlisle Bay··Resort in Antigua; $6,316 paid to the Bedens Brook Club where Graham and Katherine Graham were members; $3,000 paid to a summer camp; $400 paid to the private school where the Grahams’ child was a student; $3,127 spent at retailers, including Neiman Marcus, Blue Mercury, and Williams Sonoma; $12,736 withdrawn as cash from banks and ATMs; $6, 657 spent at retailers, including $1,331 at liquor stores.
Between June 2012 and May 2013, Graham allegedly raised $140,000 from the fraudulent offer and sale of three unregistered securities in the form of promissory notes to another Princeton resident. Graham sold two unsecured promissory notes totaling $40,000. The Dominican notes guaranteed an annual return of six percent, with the option to convert the notes into a profit participation interest in SFA’ s “Dominican Republic Oil Transaction.”
According to the state, $15,000 was deposited into the SFA bank account, and was then transferred to the VEI bank account, where: $2,294 was applied to the overdrawn balance in the VEI bank account; $3,217 was transferred to Graham and Katherine Graham’s joint investment account; $2,000 was transferred to the personal bank accounts of Graham’s business associate and his wife; $460 was used toward purchases at a liquor store; $503 was withdrawn at ATMs; and $40 was made in debit card purchases at Princeton University.
In April of 2013, the second investor received a payment of $30,000 from the SFA bank account. The money was a purported “deal payment” for the June SFA Dominican Note. But according to the state, the payment did not come from profits generated by the Dominican Republic oil transaction. Instead Graham used funds from the other Princeton investor’s purchase to pay the second investor.
After the April payment was made, Graham allegedly approached the second investor and requested that he ask his wealthy friends to invest in Graham’s projects. Encouraged by the return on the Dominican Note, the investor was eager keep investing with Graham, and told others in the Princeton area about the investments he believed were successful. In October, the investor invested another $25,000 in a second Dominican note. According to the state, Graham transferred $10,000 of the money to his personal account and a business associate’s account. He allegedly transferred $14,900 of the investor’s money to the VEI bank account and used it to pay for his child’s private school tuition.
In May of 2013, Graham allegedly sold a purportedly “secured” promissory note to the same investor for $1000,000. The note guaranteed an annual interest rate of 20 percent. The investor allegedly was told the money would be used to build a tank, and that $120,000 would be returned to him within a year and four days.
According to the state, the $100,000 from the sale of the Tank note was deposited into the SFA bank account, which had a balance of $302 before the money was credited to the account. More than $68,000 allegedly was used as follows, according to the lawsuit: At least $20, 000 was transferred to a VEI bank account, where at least $7,220 of the $20,000 was used for a $1,773 purchase at a gun and outdoor clothing retailer; $5,446 was withdrawn in cash and used-to pay nominal bank fees; 50,000 was wired to the personal bank account of one of Graham’s business associates; $3, 217 was wired to Katherine Graham’s personal bank account; and and $7,600 was withdrawn in cash.
In November of 2013, the investor received a payment of about $2,027 from ·the SFA bank account. The payment was purportedly “interest” on ‘the SFA Tank note. According to the state, the source of the funds Graham used for the payment came from a loan made by the other Princeton investor in October of 2013, and not money generated from SFA’s business operations.
In May of 2013, Graham allegedly sold the second investor a six-percent convertible unsecured promissory note for $50,000. In June he sold a third Princeton investor a three-percent convertible unsecured promissory note issued for $20,000. According to the lawsuit, he claimed that both investors’ funds would be used to fund a purported oil transaction between his company and a state-owned Nigerian oil company.
In May of 2013, the second investor wired $50,000 to Graham’s AEG bank account. At the time of the deposit, the balance of the bank account was about $102. According to the state, within days of the investor’s deposit, $40,000 was transferred to the VEI bank account and then immediately transferred to a Nigerian bank account in the name of another entity named Vulcan Minerals & Power Limited for “business checking expenses Nigeria.” The remaining $10,000 of the $50,000 investment was transferred to the SFA bank account, which had a balance of about $19,912 from the same investor’s prior $100, 000 investment in the SFA Tank note. Graham then allegedly wired $25,000 from the account to a law firm’s trust account for an entity unrelated to the Nigerian oil transaction. In November of 2013, the investor received a payment of about $304 from the SFA bank account that was purportedly interest on the six-percent note. In reality the source of the funds Graham used for the payment came from a loan made to SFA by the first Princeton investor in October of 2013, according to the lawsuit.
Following his investment, the second investor inquired with Graham about the status of his investment in the Nigerian oil transaction. According to the state, his questions were met with “excuses and unfulfilled promises of imminent payment.”
In June if 2013, the third Princeton investor wired $20,000 to the AEG bank account for the purchase of the three-percent note. At the time of the deposit, the balance of the AEG bank account was about $30, according to the state. By the next day, $19,750 of the $20,000 allegedly was wired to the VEI bank account, which only had a balance of $315 before the money was credited to the account. According to the lawsuit, at least $6,343 was withdrawn as cash from the bank and ATMs, and at least $648 was spent at retailers, including PetSmart and Target. When the investor asked questions about his investment, he allegedly was give excuses and unfulfilled promises of “imminent payment.”
In November of 2013, Graham raised another $100,000 from the second investor for “Project Delta.” Graham said his company would purchase slightly imperfect gasoline from BP and sell it to buyers within the United States. The investors’ money allegedly would be used to purchase the gasoline, prepay shipping, and set up storage for the gasoline. The company would set aside 50 percent of the profits from the gas sales to be divided among investors, with total profits of about two to three times the invested capital.
The $100, 000 from the investor for Project Delta was deposited into the AEG bank account, where, according to the lawsuit, it was co-mingled with an additional $200,000 that the same investor wired on the same day to help manage cash flow issues for Project Delta, a projected called the “Rattler Project” and a third project. The Rattler Project, a purported oil and gas drilling operation in Pennsylvania, allegedly was backed by a highly successful, retired oil trader. The oil trader allegedly guaranteed a 100-percent return of capital to investors. But according to the lawsuit, $100,000 was used to cover AEG’s overdrawn account, and $10, 000 was wired from the AEG bank account to the VEI bank account, where: $4,818 was withdrawn at ATMs; $433 was spent at restaurants and shops; $226 was spent at gas stations during a college tour in Virginia; and $343 was spent at colleges and universities. Later in November, $107,500 from the AEG bank account was transferred to the SFA bank account, and the investor received $100,000 from the SFA bank account as a return of November loan. The funds originated from the $300,000 that the same investor had transferred to AEG earlier that month, according to the lawsuit.
The second investor who invested in several of the alleged projects had a long-standing personal relationship with Graham and his wife before investing in any of the alleged businesses, according to the lawsuit. The investor met with Graham and his wife in their kitchen several times to discuss investment opportunities. According to the lawsuit, Katherine Graham was present for all but one of these meetings, and assisted Graham in stoking the investor’s interest in the investment opportunities by acting as a cheerleader for each of Graham’s projects. She allegedly encouraged him to invest by claiming the securities were safe and reliable, that she was going to invest her personal funds and inheritance in the projects, and that time was of the essence — or the investor would miss an opportunity to make money.
In February of 2018, Graham, who represented himself in the case, signed a consent judgment. He agreed he would not issue, sell, promote or offer any securities or investment advice in New Jersey until he complied with a subpoena and the state completed its investigation. He also agreed to produce various documents. But he then failed to produce any of the documents the state had requested, according to the lawsuit.
The lawsuit seeks restitution for investors, the imposition of civil penalties, and a permanent injunction against the Graham and his companies from working in the state’s securities industry in any capacity.
State officials say the case should be a reminder to people to scrutinize investment opportunities, even when they are offered by friends.
“Investors tend to lower their guard when someone they know socially or professionally offers them an opportunity to invest in a ‘sure thing,’ as happened here,” said Christopher Gerold, chief of the New Jersey Bureau of Securities. “But this case illustrates the importance of thoroughly vetting the person offering the investment, and the investment itself, before handing over your hard-earned money.”