A Woodstock millionaire’s empire of investment companies will be shut down and dismantled, a federal judge has ruled, breaking up what authorities allege was a Ponzi scheme that roped in investors from across the country.
Jim Torchia knowingly, “or at least recklessly,” misled his investors, the judge ruled. When investigators closed in, the ruling says, he used “back-of-the-napkin ‘valuation’ decisions” and “far-fetched assertions” to try to show that his Credit Nation network of companies was financially sound.
In reality, Credit Nation had huge operating losses, and liabilities exceeded assets by millions of dollars, U.S. District Judge William S. Duffey Jr. wrote. Meanwhile, Torchia transferred hundreds of thousands of dollars in “undocumented, unverified or unexplained transactions” among his various companies and used some of the money to pay for his Canton home, make loans to his son’s auto dealership and cover expenses at his Sixes Tavern sports bar.
Duffey’s 87-page preliminary injunction order sided firmly with the federal Securities and Exchange Commission, which sued Torchia and his companies last year, claiming hundreds of elderly and naive investors were at risk of losing their life savings. The judge is putting Credit Nation in the hands of a receiver, who will work to unravel the various accounts and try to salvage as much of investors’ money as possible.
“It’s long overdue,” said Doug Gaddis, a retired former fraud investigator for the Georgia Insurance Commissioner’s Office, who pursued Torchia unsuccessfully for more than a decade. “So many people could have not been hurt, if it had been dealt with sooner.”
Torchia and his attorneys did not respond to an email from The Atlanta Journal-Constitution asking for comment Monday.
The preliminary injunction Duffey issued Monday said Torchia was operating two investment schemes. In one, Credit Nation sold fractional interests in life insurance policies purchased from terminally ill and elderly people. The other scheme involved promissory notes that were said to be 100% asset backed and promised 9% annual returns.
Torchia and his attorneys argued that the insurance polices weren’t securities subject to SEC rules, and that the promissory notes were exempt from regulations limiting their sale to well-heeled investors.
Duffey rejected both arguments as well as Torchia’s contention that he, not the SEC, knew best when it came to how to value the life insurance policies.
Torchia employed untrained, uncertified employees to keep his companies’ books, Duffey noted. Torchia himself “struggled to provide a coherent explanation” of how he decided how much to pay for policies, “and his answers were often evasive …,” the judge wrote.
To try to prop up Credit Nation’s finances after the SEC began investigating, Torchia and his companies paid $6 million for policies that he claimed could quickly have sold for at least $35 million. “Extraordinary ‘wishing it were so’ claims like these require evidence to support them, which is not in the record here,” Duffey’s order said, calling the claim “arbitrary valuation sleight of hand, offered by a CEO whose testimony was not credible …”
Walter Jospin, regional director of the SEC’s Atlanta Regional Office, said he could not comment on a pending case other than to say “we are very pleased with Judge Duffey’s ruling.”
Michael Elfert, who lives in Odessa, Texas, invested more than $450,000 in Credit Nation last year after hearing an ad on a radio talk show. He moved the money over from his 401(k) account, from his career as an oil field worker, and he planned to retire next year.
Credit Nation never missed a quarterly interest payment, Elfert said.
“It’s probably going to change now, now that the judge is getting involved,” he said. “I stand a chance to be in bad shape, going into my retirement.”
Torchia has been the focus of various state investigations over the years as he offered life settlement investments. Florida fined him $120,000 for selling unregistered securities and said he “repeatedly demonstrated incompetence.”
But Torchia has used incessant litigation to fend off regulators and foes alike. Even Duffey noted Torchia’s “fight it to the death” approach to business and court obligations.
After the Georgia Department of Insurance raided his office in 2001, accusing the company of selling insurance without a license and misleading investors, he challenged the search warrant and the department backed off. He also has been locked in litigation with his former CFO, his former pitchman, former salesmen and a pair of Canadian businessmen.
Earlier this month, he sued the AJC, alleging defamation in an article published in February.
None of his companies, nor Torchia himself, nor anyone working for him, has Georgia licenses to buy life insurance policies, advertise to residents, negotiate with policyholders or broker deals, an AJC investigation found.