New Jersey Bureau of Securities Imposes Penalty on Operators of Upper Montclair-Based, $4 Million Investment Fraud
Joint Investigation Leads to Federal Arrest of Montclair Resident Nicholas Lattanzio
NEWARK – Finding that Montclair resident Nicholas Lattanzio, his Upper Montclair-based "Black Diamond" investment management companies, and Connecticut resident Pasquale Montesanti orchestrated an investment fraud of at least $4 million – and misused investor funds to, among other things, purchase a more than $1 million home, more than $100,000 worth of merchandise from Tiffany & Co., a golf club membership, and to pay off hundreds of thousands in credit card debt – the New Jersey Bureau of Securities today ordered the respondents to pay a civil penalty of $2.5 million.
In parallel proceedings, today the FBI arrested Lattanzio and he was charged by complaint with three counts of wire fraud and two counts of securities fraud by the U.S. Attorney's Office for the District of New Jersey. In addition, the Securities and Exchange Commission filed a civil complaint in the United States District Court for the District of New Jersey against Lattanzio and the Black Diamond investment management companies.
Montesanti has not been charged with a crime.
"We allege this was not a legitimate investment gone bad but a scam by these fraudsters to line their pockets and live lavishly," said Acting Attorney General John J. Hoffman. "Today's order by the Bureau of Securities, stemming from the parallel federal and state investigations, will help bring these alleged scam artists of investment fraud to justice."
"After inducing investors to entrust them with millions of dollars, as the Bureau's findings show, these scammers spent obscene amounts of investor money on expensive jewelry and other luxuries," said Acting Director of Consumer Affairs Steve Lee.
Bureau of Securities Chief Laura H. Posner said, "Lattanzio, Montesanti and the Black Diamond Entities lured investors into believing that they could provide access to multiple million dollar credit lines and that investing in Black Diamond was a safe investment that generated significant 18% annual returns. Instead of using investor funds as promised, Lattanzio used the money as if it was his own."
Bureau Chief Posner made the following findings of fact, among others, as set forth in the Summary Penalty Order:
- Between October 2013 and August 2014, Lattanzio, Montesanti, Black Diamond Capital Appreciation Fund, L.P., Black Diamond Investments, LP, Black Diamond Investments, LLC; and Black Diamond GP, LLC, (the "Black Diamond Entities") offered to help investors find outside funding for various business projects.
- To have access to this outside funding, investors were required to first make a "capital deposit" investment with one of the Black Diamond Entities.
- The Respondents falsely represented that this "capital deposit" would be invested in various "highly liquid fixed income" securities and that investor funds would be secure and available to be returned if the funding fell through.
- In addition, Respondents represented that the Black Diamond Entities' fund had generated "historical pro forma returns" of 18.14% and over $900,000 in "cumulative portfolio earnings" per million dollars under management from January 2008 through March 2013, even though the fund was not even formed until December 2009.
- Rather than invest client "capital deposits" as represented, the Respondents quickly misused more than $4 million of investors' funds for the personal benefit of Lattanzio, Montesanti and their families.
- Among other things, Lattanzio used investor funds to purchase a more than $1 million home in Montclair; a $124,000 luxury car; and more than $100,000 in merchandise from Tiffany & Co.; to repay more than $550,000 in credit card debt; and to pay for membership at an exclusive golf club and to a yacht broker. In addition, Lattanzio took approximately $500,000 in cash or checks for himself and his girlfriend from investor funds.
- Investor funds were also used to pay for, among other things, Montesanti's daughter's college tuition, consulting fees, loans, and advances.
- In addition, in August 2011, Lattanzio and Black Diamond Investments LP falsely solicited at least one advisory client to engage in currency trading. Specifically, they falsely told at least one investor that if he invested with Black Diamond Investments LP, then that entity would invest the same amount of money. Black Diamond Investments LP would then engage in currency trading on behalf of both the investor and Black Diamond Investments LP, and they would share profits and losses equally. Despite an investment from at least one advisory client, Black Diamond Investments LP never contributed any money to currency trading.
In addition to the $2.5 million civil monetary penalty, the Penalty Order prevents the respondents from offering investment advice or selling securities unless registered with the Bureau.
Investigators Peter C. Cole and Glenn Henry of the New Jersey Bureau of Securities conducted the investigation of this matter.
The Bureau thanks the U.S. Securities and Exchange Commission's New York Regional Office, under the direction of Andrew Calamari, and the U.S. Attorney's Office for the District of New Jersey, under the direction of U.S. Attorney J. Fishman.
The Bureau of Securities can be contacted toll-free within New Jersey at 866-I-INVEST
(866-446-8378) or from outside New Jersey at 973-504-3600. The public is encouraged to visit the Bureau's website at NJSecurities.gov