Federal securities regulators have filed civil fraud charges against two New York men and four businesses they control, alleging that they ran a $51 million Ponzi scheme that involved buying blocks of concert and theater tickets, including Broadway’s hit musical Hamilton.
According to a complaint filed Friday in New York, Joseph Meli and Matthew Harriton raised about $81 million from at least 125 investors in 13 states. They allegedly told investors the money would be used to finance the buying and reselling of tickets to high-profile events.
The men allegedly promised investors in writing that they would receive their principal back, plus a 10 percent annualized return, within less than a year. Investors also were promised 50 percent of any leftover profits from the ticket resales.
Instead, the defendants “diverted at least $51 million of the incoming investor funds to perpetuate a Ponzi scheme and to enrich themselves,” investigators from the Securities and Exchange Commission’s Boston office said in the complaint.
Meli and a third man were arrested Friday in New York by the FBI on a related criminal complaint.
“As alleged in our complaint, Meli and Harriton raised millions from investors by promising big profits from reselling tickets to A-list events when in reality they were moving investor money in a circle and creating a mirage of profitability,’’ said Paul G. Levenson, director of the SEC’s Boston regional office.
In one instance, in December 2015, one of the companies falsely told an investor it had an agreement with the producer of Hamilton to purchase 35,000 tickets, and that the investor’s money would be used to pay part of the cost of obtaining the tickets, the SEC alleged.
But there was no such agreement with the Hamilton producer, the SEC said. The juggernaut show, which has been playing to sold-out crowds since moving from the East Village to Broadway in August 2015, even today is fetching $1,380 a ticket in the resale market.
One investor thought his money was going to both Hamilton tickets and Adele concert tickets, the SEC alleged.
Only a small portion of the investor funds was used to make payments to entities with any apparent connection to ticket reselling, the SEC alleged. At least $48 million of investor funds appears to have been used to repay and provide purported returns to earlier investors, “thereby perpetuating the illusion of a profitable, ongoing investment,” the complaint said.
From January 2015 through October 2016, about $1.2 million was transferred to Harriton directly for his personal use, according to the complaint.
In addition to using new investor funds to make payments to existing investors, Meli and Harriton have spent almost $2 million to buy jewelry, to pay private school and camp tuitions, and to make payments to casinos, according to the complaint.
Meli’s wife also is named in the complaint. She allegedly received $136,000 of investor funds in the same period.
The business entities run by Meli and Harriton are based in New Canaan, Conn., Stamford, Conn., and New York, according to the SEC. They include Advance Entertainment and 127 Partners, run from Meli’s residence; Advance Entertainment II, of New Canaan; and 875 Holdings of Stamford.
Harriton did not return a call seeking comment. Meli could not immediately be reached.
The SEC is looking to freeze the assets of the three individuals and the entities, and to get back investors’ money.