On Tuesday of this week, the Securities and Exchange Commission ("SEC") filed a civil lawsuit against Oscar Villarreal for swindling investors out of more than $18 million. Knowing about the federal investigation back in October, I posted a blog about Villarreal and his WW Capital Partners Funds. At that time, I predicted that he was running an illegitimate investment scam due to the SEC and FBI involvement, potential commingling of funds, lack of transparency, lack of audited financials, promise of high returns, and excessive complexity. Unfortunately, it turns out that the prediction was correct – it appears to be a massive fraud.
According to the SEC complaint, 29-year-old Villarreal lied to investors, telling them that their money would be used to make investments in oil-related companies doing business in Mexico. Villarreal is a Mexican citizen who came to the Cleveland area in 2002. While a college student, Villarreal met several prominent members of Cleveland's business community and elevated his status by purporting to have connections to Mexican business interests.
Initially, Villarreal offered WW Capital Partners Fund II to six investors in 2008, collecting $550,000 from them. He turned around and gave them back over 30 percent in returns as a way of gaining their confidence. After that, it was easy then to convince the investors to dump millions more into a new fund called WW Capital Partners Fund III. This fund raised $9.2 million from 46 investors. Investors were told that the money would be used for private equity investments in petroleum, steel, and real estate industries in Mexico. According to the SEC, Villarreal used nearly $6 million of the fund to pay off personal credit cards, his mortgage, and buy a car.
Villarreal also raised $9 million from 11 investors for a fund called Standard Asset Management Fund I. To accomplish this, he solicited some of Fund III's investors who Villarreal knew believed that Fund III was profitable. He distributed self-drafted written materials stating that investors' money would be pooled and used to invest and trade in companies listed on the Mexican stock exchange. This fund attracted $3.7 million from nine investors, many of whom were investors in Fund III as well. The SEC states in its complaint that Villarreal's trading was a massive failure. By May 2012, the SAM Fund lost over 83 percent. It was shut down in June 2012. Shortly thereafter, Villarreal moved back to Mexico.
