R.I. man charged with defrauding investors in Ponzi scheme

PROVIDENCE – David Wagner of East Greenwich and Downing Partners LLC and its subsidiaries have been charged with defrauding investors out of millions of dollars.

Separate complaints were announced June 14 by the U.S. Securities and Exchange Commission and Mass. Secretary of the Commonwealth William F. Galvin.

The SEC alleges that between May 2014 and January 2017, Wagner, an unregistered investment adviser, and an associate, Mark Lawrence of Watercolor, Fla., along with Downing Partners, Downing Investment Partners and Downing Digital Healthcare Group, raised more than $8 million from at least 30 investors in certain health care funds.

According to the complaint, the defendants purported to acquire, manage and resell companies that provided health care services and related technologies for the funds’ investment portfolios. Wagner controlled the health care funds and their bank accounts and, with Lawrence, solicited investors on behalf of the funds, the SEC alleges.

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To entice new investors, Wagner and Lawrence are alleged to have falsely inflated the available cash reserves of the funds, including Downing Investment Partners and Downing Digital Healthcare Group, and revenue from the funds’ portfolio companies, according to the SEC. The agency also alleges that Wagner secretly negotiated an agreement requiring Downing Digital Healthcare Group to pay management fees to him and an entity that he controlled, resulting in the fund paying more than $540,000 in undisclosed management fees.

Meanwhile, the SEC said, the U.S. Attorney’s Office for the Southern District of New York announced related criminal charges against Wagner and Lawrence.

In Massachusetts, Galvin’s office has charged Wagner with operating a Ponzi scheme that defrauded more than 40 investors out of more than $10 million. Wagner, Downing Partners and its subsidiaries are alleged to have required employees to invest in the company as a condition of employment, while using the invested funds to pay for operating expenses, including management fees and employee salaries, according to the complaint.

“This case represents a classic Ponzi scheme, but unfortunately, in addition to costing these investors their savings, it has also cost them their livelihoods,” Galvin said.

According to the complaint, Wagner and the Downing companies engaged in an “aggressive recruitment scheme” that targeted potential employee investors. Recruited employees were promised six-figure salaries and benefits, but they were first required to invest between $50,000 and $250,000 in the company’s purported development of various medical products, Galvin’s office said.

“In reality, the Downing companies were experiencing significant financial difficulties and almost none of the funds raised from prospective investor-employees were used for the development and commercialization of products,” the complaint states. “Instead, the money raised from investor-employees was used to enrich Wagner and the management team, as well as pay other investor-employees.”

According to Galvin, many of the affected employees, who were lured into the company with fraudulent information about the company’s worth, promises of high salaries and generous benefits, left behind lucrative job opportunities and invested their retirement funds in the Downing companies. A majority of them never received the full salaries promised to them and saw their health insurance lapse when the company failed to make payments.

“My office is making every effort to get this money returned to the employees who were defrauded,” Galvin said. “We have been working with the U.S. Attorney’s Office in the Southern District of New York on this case for several months and I intend to make sure that the Massachusetts victims get their fair share of the money from any victim assistance fund that is established.”

Scott Blake is PBN staff writer. Email him at Blake@PBN.cpm.