A Massachusetts subprime auto lender has been charged with fraud for allegedly collecting $110 million through the sales of unregistered securities notes.
According to a Securities and Exchange Commission complaint, Massachusetts-based Inofin Inc. and three of the company’s executives raised the funds from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors were told that Inofin would use the money for the sole purpose of funding subprime auto loans.
As part of the pitch, Inofin told investors that they could expect to receive returns of 9% to 15% because the company loaned investor money to its subprime borrowers at an average rate of 20%. The SEC said unbeknownst to investors, one-third of the $110 million raised was used to open four used car dealerships and begin multiple real estate property developments for their own benefit. The commission said Inofin is not registered with the SEC to offer securities to investors.
From 2006 to April 2010, Inofin’s executives allegedly defrauded investors while maintaining the company’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The state regulator had previously taken action requiring Inofin to surrender its license to operate as a subprime auto lender, according to the SEC.
As early as 2006 and into 2011, Inofin also allegedly misrepresented its financials. The SEC said the company had a negative net worth caused in part by management’s decision from 2007 to 2009 to sell some of its auto loan portfolio at a discount to solve ever-increasing cash shortages. The company continued to offer and sell Inofin securities during this time period, according to the complaint.
An SEC official involved in exposing alleged fraud by a subprime auto lender could not say if credit unions were victimized. Kevin Kelcourse, an assistant director with the SEC’s Boston regional office, said the agency cannot go beyond the complaint involving Inofin Inc. in indentifying who was involved.