Miami investors lost millions in payday loan scheme, SEC says
After his mother had brain surgery for cancer last year, Andres Zorrilla desperately needed to raise money for her post-surgery treatment and so he tried to withdraw $30,000 he had invested in a Miami payday loan company.
But Zorrilla says Efrain Betancourt Jr., the CEO of Sky Group USA, LLC, fired him, ignoring his call flow and an email about the “family crisis” with an attached photo of his mother showing the surgical stitches on his head.
“That’s when I started to get suspicious and worried,” said Zorrilla, 38, who also referred his wife, brother and several other associates to Betancourt as investors in his Miami-based payday loan company.
“I found out it was all bulls—. … The guy was just stealing money.
Altogether, hundreds of investors – mostly from the Venezuelan community in South Florida – were dazzled by Betancourt’s polished sales pitch about the high-interest returns on their investments in his lending operation. short term. Their faith in Betancourt, who falsely claimed to have law and computer engineering degrees in the United States, cost them dearly, according to courts and other legal documents.
In September, the Miami Securities and Exchange Commission filed a civil complaint against Betancourt and his company, accusing them of committing securities violations in a scheme that authorities called “affinity fraud.” In the civil suit, the SEC says Betancourt and Sky Group sold more than 500 investors fraudulent promissory notes totaling $66 million. Indeed, Betancourt raised millions from them to fund high-interest loans to borrowers across the country.
According to the SEC complaint, Betancourt spent most of the money on a luxurious lifestyle — including a new waterfront condo in Miami and a wedding to his fourth wife in Monaco — while using at least $19 million Ponzi-style to pay interest to some investors to keep them off.
Betancourt, 33, and his company, Sky Group, are named as defendants in the SEC civil case; they have not been criminally charged.
Betancourt’s defense attorney in the SEC case, Mark David Hunter, did not return multiple emails and phone messages seeking comment. In a motion to dismiss the SEC’s complaint, Hunter argued that promissory notes are not securities like stocks and bonds, but rather loans; therefore, his client and Sky Group did not break the law by not reimbursing the lenders.
Zorrilla, who works in real estate finance in Miami, said he felt bad not only for himself but also for his wife, brother and several others he introduced to Betancourt.
“He made a lot of money and got a little crazy with the money,” said Zorrilla, whose immediate family invested a total of $150,000 and received interest payments but lost all their principal. . “That’s how he got away with this Ponzi scheme for so long.”
Betancourt’s alleged scheme, described in the SEC complaint, lasted from January 2016 until just before the coronavirus pandemic hit the country in March 2020. As countless borrowers defaulted on their payday loans, his company, Sky Group, suffered a severe cash flow problem and was unable to pay interest on investor promissory notes.
Miami attorney Rick Diaz, who represents Zorrilla, his wife, Melissa Montoya, and brother, Juan Pablo Montoya, in an effort to recoup their investment losses, described Betancourt as a “mini-Madoff.” It refers to the late New York financial adviser Bernard Madoff, who ran the largest Ponzi scheme in the country’s history.
“I have handled, filed and defended Ponzi schemers over the years,” Diaz told the Miami Herald. “Efrain Betancourt is the sweetest, cruelest and most arrogant, selfish and narcissistic of them all.”
Earlier this month, Betancourt gave a deposition in which he repeatedly invoked his Fifth Amendment right against self-incrimination while being questioned by Diaz. In an earlier deposition, Betancourt, who was born in Venezuela and raised in the Miami area, admitted that he did not have law and computer engineering degrees in the United States. But he insisted his payday loan business was legitimate, despite interest rates far higher than Florida’s 18% annual cap. He also said that the people who had invested in his business were “lenders” involved in financing short-term, high-interest loans. He called them “commercial transactions”.
“I made it very clear that they were investing in a payday portfolio,” Betancourt told Diaz in a May 2021 deposition. “Now, the payday portfolio comes with risk.”
Promise of high returns
According to the SEC complaint, Sky Group and Betancourt falsely told investors that the company would use investors’ money only to make payday loans and cover the costs of those loans, promising them annual rates of return of up to $120. % on tickets.
In fact, according to the complaint, Betancourt misappropriated at least $2.9 million for personal gain. Among his expenses: an extravagant wedding at a French Riviera castle, vacations to Disney resorts and the Caribbean, and the costs associated with buying a luxury Miami condominium at Epic Residences on Biscayne Boulevard. . He also used some of the money to service his personal Piper jet, SEC officials said.
Epic Residences also sued Betancourt, claiming it owed more than $65,000 in condo and hotel appraisals, according to court records.
Betancourt is also accused of transferring at least an additional $3.6 million to friends and family, including his ex-wife, Angelica Betancourt, and to EEB Capital Group LLC with no “apparent legitimate business purpose,” according to the SEC complaint. That company’s bank accounts were controlled by Betancourt and his current wife, Leidy Badillo, the complaint says.
In court papers, EEB Capital attorney James Sallah acknowledged that Betancourt and his current wife, Badillo, were signatories to the company’s bank accounts, but denied the SEC’s allegation that EEB reportedly received $1.5 million of funds from Sky Group investors for “no apparent legitimate purpose”. .”
For her part, Angelica Betancourt denied receiving $1.2 million from Sky Group, as alleged in the SEC complaint. She said she only earned an annual salary of $60,000 from the payday loan company, according to her attorney, Diaz, who also represents Zorrilla and others who have sued her ex-husband.
In addition to the SEC complaint, there are at least half a dozen lawsuits and arbitrations filed against Betancourt and Sky Group.
Among the plaintiffs: Victor Segura and his daughter, Johanna Segura, who lost $200,000 after investing in his alleged loan scheme. They saw themselves as “investors”, not “lenders”, as Betancourt tried to describe them and others in his defense. But Seguras lawyers Gerardo Vazquez and Steven Herzberg counter that Betancourt simply interpreted their investments as promissory notes to make them look like loans and not securities.
According to Seguras’ federal lawsuit, “Sky Group and Betancourt used substantial investor funds for purposes other than cash advances [to Payday loan borrowers]including payment of Sky Group’s operating expenses and executive compensation … as well as payment of commissions to its unregistered advisers, brokers and sales agents.
SEC alleges fraud
SEC officials accused Betancourt of lying to his payday loan investors.
Their complaint alleges that Betancourt and Sky Group misled investors by promising extraordinary returns on their promissory notes and claiming the payday lending business was profitable, even though Sky Group failed to generate sufficient revenue. to cover principal and interest payments due to investors. Betancourt was able to circumvent Florida’s caps on usury rates by providing the payday loans through Utah, which allows for much higher loan terms, until its business model collapsed.
“The scheme collapsed in July 2019, when Betancourt told investors that Sky Group was suspending investor redemptions on the notes,” according to the SEC complaint filed in federal court in Miami. “Even then, Betancourt and Sky Group continued to lie, falsely blaming the suspension of refunds from a supplier responsible for processing refunds from the company’s investors.”
“We continue to warn investors to beware of any investment that promises returns that are too good to be true,” said Eric I. Bustillo, director of the SEC’s Miami regional office.
The SEC is seeking permanent injunctions and financial penalties from the defendants.