Federal securities regulators Friday accused a Van Nuys man of preying on Armenian immigrants in a $19-million fraud scheme.
Securities and Exchange Commission investigators said that Michael Garian, also known as Melkon Gharakhanian, falsely told investors that he and his company, National Investment Enterprises, were investing their funds in the hot technology stocks of the late 1990s.
The SEC filed a civil complaint against Garian in U.S. District Court in Los Angeles on Friday. The Los Angeles County district attorney is investigating the case but has not decided if it will file criminal charges, a spokeswoman said.
Investors, many of whom spoke no English and trusted Garian because he spoke Armenian, were lured by promises that he could purchase technology stocks at the low prices at which they were initially offered to the public, the SEC said.
Shares of these initial public stock offerings were typically reserved for well-connected institutional investors and traders. At the height of the ‘90s stock market bubble, the value of an investor’s stake in a hot IPO could increase dramatically in a single day as buyers scrambled to get in on the offering.
About 200 people signed on, investing a total of $19 million with Garian from 1997 to 2001, said Lisa Gok, assistant regional director of enforcement for the SEC.
George Derashotian said he could not believe his good fortune when the value of his $25,000 investment in 1999 with Michael Garian grew to $61,000 in eight months.
“I was jumping for joy,” said Derashotian, 42, who owns a gas station in San Dimas. “Before that I had lost quite a bit of money in the stock market.”
Derashotian invested $110,000 more with Garian, and introduced him to a cousin and a friend.
But, according to Gok, Garian invested very little of his clients’ money in the stock market. Rather, she alleged, he operated a sort of Ponzi scheme, using money from new investors to pay those who had invested previously.
If a client wanted to cash out, she said, Garian would send out money that had been invested by others. He did invest $5.2 million in the stock market, she said, but lost most of it through unsuccessful day trading. The SEC said in its complaint that Garian took at least $112,000 in cash, and that an additional $2.3 million in cashier’s checks was withdrawn from the bank account of his investment company.
Gok accused Garian of engaging in what regulators call affinity group fraud: gaining victims’ trust by appearing to be a knowledgeable member of their ethnic group, church, club or other association.
Garian’s attorney, Robert Rosen of Los Angeles, denied the allegations and said he hopes to be able to resolve the case soon.
He said that Garian raised only $10.8 million, and that he returned more than that, $12.7 million, to his clients. They lost a total of about $5 million, he said.
Rosen said Garian’s actions did not constitute affinity group fraud.
“Just because some members of Glendale’s Armenian community were involved, it doesn’t mean this was an affinity fraud,” he said.
Derashotian said he began to sense something was wrong when Garian sent him a statement that included stocks he hadn’t purchased. “Last January, I told him, ‘Just cash me out,’ ” Derashotian said.
But by then, Garian had run out of money, according to investigators. When Derashotian finally received a check, it bounced, the investor said.
Like his friend Derashotian, Woodland Hills resident Loodvik Peerali was thrilled when he saw how quickly his investments with Garian grew.
He initially invested $20,000, and over time his portfolio’s value skyrocketed to $600,000. On paper, at least.
“I trusted him,” said Peerali, who owns a gas station in Toluca Lake. “I was ready to sell my station and put all the money in with him.” In the end, Peerali said, he lost about $350,000.
In its complaint, the SEC is asking the court to impose a fine in an unspecified amount and to order Garian and his company to return, with interest, any money obtained fraudulently.
Times staff writer E. Scott Reckard contributed to this report.