Former WSCR blowhard Mike North (above) was relieved of his duties at fledgling internet broadcaster Chicago Sports Webio last Friday after asking a question too many about bounced paychecks. Earlier today, the Chicago Tribune’s Ameet Sachdev and Becky Yerak reported CSW founder David Hernandez has been charged with operating a Ponzi scheme.
On Monday, the U.S. Securities and Exchange Commission accused David J. Hernandez of violating federal securities laws, three days after the FBI executed search warrants on the Chicago office of NextStep Financial Services Inc. and NextStep Medical Staffing, two business ventures with ties to Hernandez.
The SEC said NextStep Financial is a defunct corporation through which Hernandez operated his fraudulent scheme. He allegedly sold so-called “guaranteed investment contracts” to investors that promised returns of 10 percent to 16 percent per month. The complaint said Hernandez, 48, of Downers Grove, raised more than $11 million from investors in at least 12 states.
Chicago Sports Webio debuted earlier this year with media fanfare and what appeared to be a sizable financial commitment by Hernandez. The SEC charges that Hernandez spent at least $275,000 of investor funds to pay for advertising and promotion of the Web site and another company he controlled, NextStep Medical. He also diverted at least $165,500 of investor funds to Spectrum’s bank accounts, the complaint said.
Hernandez also diverted about $500,000 for his and wife’s personal use, the complaint said. He bought an Audi Quattro car for $25,879, a $16,674 Steinway piano and $34,000 in jewelry from Tiffany’s. He also spent $23,000 for a holiday party at the Ritz-Carlton in Chicago in December. He also paid off a $318,000 mortgage on his Downers Grove residence.
The SEC said that in his pitch to potential investors, Hernandez misrepresented his educational background. The agency said that he never attended the University of Wisconsin, where he said received his bachelor’s degree in finance and a master’s in business administration. His law degree from John Marshall Law School in Chicago is also fake, the SEC said.
Hernandez also hid his criminal background from investors, the complaint said. In October 1998, he pleaded guilty to wire fraud for diverting money that investors sent to Columbia National Bank in Chicago, where he worked as a vice president, to accounts under his personal control. Hernandez was sentenced to 34 months in prison and ordered to pay restitution of $590,533.67.