The SEC has launched a lawsuit against Ramil Ventura Palafox, founder of defunct Praetorian Group International Corporation (PGI Global), accusing him of orchestrating a $198m crypto and forex investment fraud that resembled a Ponzi scheme.

The SEC alleged in its complaint that from January 2020 to September 2021, Palafox and PGI Global defrauded investors by selling “membership packages” that would allow them to receive up to 200% returns on investments made in Forex and crypto markets. 

Sales of those packages were facilitated by employees, including Palafox, who had previous experience in multi-level marketing and crypto investment solicitation. But, according to the complaint, Palafox lacked the professional experience in cryptocurrency trading that he claimed to investors, and his company was not registered to operate in any jurisdiction. 

And the firm did little to no trading at all. Instead, the returns were almost entirely generated by previous customers buying those membership packages, with the proceeds funneled to earlier investors. 

Securities

PGI also never registered those membership packages as securities with the SEC, as it was required to do so by law, the complaint states. 

Of the $198m fraudulently obtained from investors, Palafox is accused of personally misappropriating $57m.  

The complaint states that Palafox used the returns to fund a lavish lifestyle, involving purchases of luxury cars and properties for himself and his family. 

The enforcement action represents the SEC’s first major case since it vowed to “go back to basics,” focusing its enforcement priorities on clear-cut misconduct and fraud as opposed to the aggressive, precedent-setting litigation seen during the Biden era that critics labeled “regulation by enforcement.”

Scott Thompson, Associate Director of the SEC’s Philadelphia Regional Office, said: “We will continue to investigate and take action against bad actors who take advantage of investors with promises of guaranteed passive income and other lies and deceit.”

AI washing

The SEC stated in its complaint that Palafox was able to convince investors to stay on due to AI-enabled trading protocols, which the company referred to as “auto-trading.” 

The SEC has signaled that while it is unlikely to regulate AI use proactively, it will continue to leverage enforcement against fraudulent claims about AI—a common deception otherwise known as “AI washing.” 

Rule violations

Palafox was accused of violating:

• Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, covering the sale of unregistered securities and fraud in the sale of securities;
• and Section 10(b) and 10(b)-5 of the Securities Exchange Act of 1934, covering securities fraud generally.