Providence Financial Investments, a Miami-based firm that took in millions in investors’ money in South Florida and across the nation, filed for bankruptcy protection in the U.S. Southern District of Florida court last week. This follows actions by the nation’s top investment regulator, the U.S. Securities and Exchange Commission, to shut the company down.
In a federal court filing in Minneapolis — one of the places Providence had an office — last month, the SEC called the investment scheme an “ongoing fraudulent and unregistered securities offering.” The securities had not been registered with the SEC, and brokers selling them were unregistered, the agency said. In addition, Providence hasn’t accounted for the money it has collected and was in a poor financial condition that wasn’t disclosed to its investors, the filing said, all the while continuing to solicit the nest eggs of people around the country.
Two Tampa residents, who asked not to be identified, are among the Florida victims. They said they met with company executives, including the CEO, on several occasions, including in Key Biscayne, Panama and Brazil; they had been investing smaller amounts for a few years, “and everything seemed to be going well.” Because of that, they said they increased their investment by $207,000 earlier this year.
But last week, the two partners didn’t get interest payments that they were expecting, they said on Tuesday. Their calls to the company weren’t returned, raising more red flags. Their total investment: about $350,000 — “a lot of cash up in smoke” that was planned for a waterfront property, one of them said. His partner called it a life’s savings.
The SEC filed a complaint against the company in June alleging violation of various securities laws and requesting a jury trial; the U.S. District Court of Minnesota entered a preliminary injunction against the Providence defendants. Last week, after Providence Financial failed to submit sworn accounting statements by July 25, the court issued a contempt-of-court order, freezing assets and seeking appointment of a receiver and expedited discovery.
An SEC official in Chicago, where the filings were made, declined to comment, saying the court documents speak for themselves.
Messages left Tuesday at the Providence Financial office in Coral Gables for the CEO, Antonio Buzaneli, and COO Jose Ordonez were not returned. On the bankruptcy documents, a Blue Lagoon address is listed for the company.
The SEC alleges that Providence Financial and Providence Fund raised more than $64 million from more than 400 investors throughout the United States, including dozens from Puerto Rico, through the unregistered sale of promissory notes that pay annual returns generally ranging from 12 percent to 13 percent.
Providence Financial and Providence Fund represented to investors that their investment proceeds would be used to fund the “factoring” of accounts receivable in Brazil, the filing said. Providence Financial and Providence Fund spent, at best, less than 68 percent of their investors’ money to finance Brazil factoring transactions and both companies have been unable to account for how they spent the remaining investor proceeds, the filing said.
“Both companies hold very little cash or liquid assets, while the amount of money owed to investors appears to dwarf the value of any Brazilian receivables investments held by them. Compounding these problems is a highly unfavorable foreign exchange rate which hinders the repatriation of Brazilian assets to repay U.S. investors,” the SEC’s filing said.
Investments in “factoring,” or the purchase of accounts receivable from a company at a discounted rate, are not illegal. Providence bought the invoices of small and medium-sized businesses in Brazil, giving the businesses cash immediately, then collecting from the businesses’ customers. Providence bundled these debts into securities with a 12- or 24-month maturity, which it then sold to investors who expected a fixed-rate return of 12 or 13 percent. Many of the firm’s clients have rolled their investments over as their notes matured rather than cashing out.
In the Chapter 7 bankruptcy filing filed on Thursday, Providence estimated it had 100 to 199 creditors. It said it had estimated assets of 0 to $50,000 and liabilities of $1 million to $10 million. The filing included a partial list of creditors, most of them likely to be investors — 125 — but that will likely grow as the company has until Aug. 11 to amend the filing. Half of the creditors listed were from Puerto Rico.
Also filed was a separate action for the Providence Fixed Income Fund. The company has been headquartered in the Miami area for six years.
An undated informational packet describes Providence Financial as “specializing in principal protected returns” and as part of the Providence Companies Group, “a diversified global commercial group of companies with over 30 years of experience in financial services, receivable financing, trade in Brazil, China and other global emerging markets” with 24 offices around the world, including in Shanghai, Dubai, Istanbul, London and Sao Paulo. It contained a page of information about Brazil’s “unlimited potential.”
Nancy Dahlberg: 305-376-3595, @ndahlberg. Information from the Minneapolis Star Tribune contributed to this report.