A Montecito man and his Santa Barbara-based equipment leasing company have been charged by the U.S. Securities and Exchange Commission with defrauding investors in connection with the sales of more than $80 million in promissory notes.
The complaint, filed June 5, names Essex Capital Corp. and its founder and CEO, Ralph T. Iannelli, according to a news release issued by the SEC.
“Between 2014 and 2017, Essex Capital Corporation and its founder, Ralph T. Iannelli, made a series of false and misleading statements and illusory personal guarantees to registered investment advisers to induce them to invest millions of dollars of their clients’ money in Essex’s failing equipment leasing business,” the SEC stated.
Some 70 investors were taken in by the alleged scam through the sale of promissory notes that carried a high interest rate — typically around 8.5 percent, according to the SEC complaint.
“The SEC alleges that Essex and Iannelli provided one investment adviser with fake financial statements that overstated Essex’s assets by more than $20 million, and falsely told another investment adviser that Essex would assign equipment leases to its clients when the same leases had already been pledged as collateral for bank loans.”
The complaint alleges that between 2014 and 2016, approximately $104 million of Essex’s revenues came from investors and banks, and only $34.4 million came from equipment leasing.
The complaint also states that during that same period, “Essex sustained a staggering $32 million in operating losses.”
The SEC alleges that as the company’s finances deteriorated, it resorted to “frequent Ponzi-like” payments, paying interest and principal to existing Essex investors with funds raised from newer investors.
“At the same time,” the SEC stated, “Iannelli allegedly paid himself millions of dollars in bonuses and siphoned millions of dollars out of Essex through interest-free loans with no maturity date.”
According to the SEC, Iannelli personally owes more than $6.4 million to the company, which also has offices in New York City.
The SEC is seeking disgorgement of allegedly ill-gotten gains, along with interest, monetary penalties, and permanent injunctions against Iannelli and Essex.
The agency also requested emergency relief against Iannelli and the company, including a preliminary injunction, an asset freeze and the appointment of a receiver over Essex.
Iannelli did not return a call from Noozhawk seeking comment on the case.
According to the Essex Capital website, Iannelli founded the company in 1993.
Prior to that, he held management positions at IBM and executive positions at Nixdorf Computer and Pitney Bowes.
He began his career in 1970 in securities trading and sales at Loeb, Rhoades & Co.
He is a graduate of St. Joseph’s College and attended the University of Chicago.
Iannelli is a member of the board of directors for the Santa Barbara Center for the Performing Arts, and formerly served on the board of directors of the Santa Barbara Foundation.
Essex has offices locally at 1486 East Valley Road in Montecito.
Click here to read the complaint.
— Noozhawk executive editor Tom Bolton can be reached at tbolton@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.