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Court Halts ''Green'' Pavement Company's $26 Million Ponzi Scheme

Monday, October 10, 2011

Yoomi Lee | Bloomberg LawSEC v. Eric J. Aronson, No. 11-CV-07033 (S.D.N.Y. filed Oct. 6, 2011); SEC Press Release No. PR-2011-201 (Oct. 6, 2011) The U.S. District Court for the Southern District of New York granted the Securities and Exchange Commission's (SEC) request for an emergency court order to halt a ponzi scheme that defrauded at least 140 investors out of approximately $26 million.

Alleged Ponzi Scheme

The SEC's complaint alleges that between 2006 and 2010, Eric J. Aronson and Vincent Buonauro, executives of PermaPave Industries, LLC, Robert Kondratick, executive of PermaPave USA Corp., and Fredrich H. Aaron, attorney for the PermaPave entities and Aronson, misrepresented to inexperienced investors that their money would be used to purchase and ship "PermaPave pavers"—permeable paving stones comprised of small rocks glued together. Aronson, Kondratick, and Aaron (collectively with Buonauro, Defendants) allegedly created multiple PermaPave entities, also named as defendants in the SEC's complaint, for the purpose of both furthering and concealing the fraud. Accordingly, Aronson and Buonauro, neither of whom was associated with a registered broker-dealer, allegedly sold unregistered promissory notes and used misleading fund agreements issued by the various PermaPave entities. Aronson and Buonauro also purportedly told investors that the investment was "risk-free" and would yield monthly returns of 7.8 to 33 percent. The SEC further alleges that Defendants told investors that the PermaPave entities had a tremendous backlog of confirmed orders and investors would be repaid from the profits generated by these guaranteed sales. In reality, there was allegedly little demand for the product, and the cost of the pavers far exceeded the revenue from sales. As a result, Defendants allegedly paid earlier investors with money derived from new investors. Their ability to make these payments was short-lived, however, because they allegedly also used the money to fund lavish lifestyles and transferred millions of dollars to the relief defendants, consisting of family members and various entities controlled by Defendants. The SEC further charges that in late 2008, Aronson and Aaron allegedly alleviated investors' demands for payment by persuading them to exchange their notes and agreements for a convertible debenture that paid interest at a much lower rate and deferred repayment of principal by two years. However, even after quieting investors concerns, Aronson and Kondratick purportedly continued to fraudulently offer and sell the promissory notes and use fund agreements. Moreover, to avoid making interest payments to investors, Aronson and Kondratick told investors that the company was being sold and urged them to convert their debentures, notes, and agreements into equity of the new company. Of course, there was never a sale of the company, and the investors who converted their investments never received the shares that they were promised. — Other Fraudulent Conduct The SEC also charges that the fraud did not end with the PermaPave entities. In 2010, The Verigreen Group, LLC (Verigreen Group), the parent company of several of the PermaPave entities, allegedly acquired Interlink-US-Network, Ltd. (Interlink), a publicly traded company, using money raised through the Ponzi scheme. Several months later, Kondratick, who was also the manager and 99 percent owner of Verigreen Group, signed Interlink's Form 8-K, which stated that LED Capital Corp. had agreed to invest $6 million in Interlink. According to the SEC, these statements were false and LED Capital Corp. never had any dealings with Interlink.

Federal Securities Violations

Accordingly, the SEC charges Aronson, Buonauro, Kondratick, the PermaPave entities, and Interlink with violating Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Aaron is charged with aiding and abetting the Exchange Act Section 10(b) and Rule 10b-5 violations. Further, the SEC charges Interlink with violating Exchange Act Section 13(a) and Rules 12b-20 and 13a-11 thereunder, and charges Aronson, Kondratick, and Aaron with aiding and abetting those violations. Lastly, the complaint also assertsviolations of Securities Act Sections 5(a) and 5(c) as to Aronson, Buonauro, and the PermaPave entities, and violations of Exchange Act Section 15(a)as to Aronson and Buonauro. Accordingly, the SEC seeks preliminary and permanent injunctions, disgorgement and prejudgment interest, and civil monetary penalties from Defendants. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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