The U.S. Securities and Exchange Commission has moved to stop what it claims was an investment scam perpetrated by a man who has already been banned from Ontario’s securities markets.

The SEC announced Friday that it has obtained emergency relief to stop an allegedly fraudulent scheme that raised over US$7.2 million from investors who were told the money would be used in a business shredding and recycling used tires. However, the SEC alleges that the tire-shredding equipment did not work, so there was no reasonable basis for its income and return expectations, and the investors never received a return from their investment.

The allegations have not been proven. However, the SEC has obtained a preliminary injunction and asset freeze in the U.S. District Court for the Eastern District of Michigan against Paul Merklinger of Michigan, and Encore Associated Leasing LLC, a company formed, owned and controlled by Merklinger. An asset freeze was also issued against Merklinger’s son, Brian Merklinger, a relief defendant.

On July 24, the court issued an order temporarily prohibiting Merklinger and Encore Leasing from attempting to offer securities or other investments and from transferring any assets. That order was issued under seal by the court and that seal has now been lifted, the SEC said.

According to the SEC’s complaint, Merklinger used more than US$950,000 of investor funds for his own personal benefit, transferred more than US$172,000 for the benefit of his son, and used more than US$134,000 to make payments to investors in one of his other companies. “Further, Merklinger failed to disclose to investors that he had been barred from participating in Ontario, Canada’s securities markets for 10 years in connection with a prior investment scheme,” the SEC said.

The SEC’s complaint charges Merklinger and Encore Leasing with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement, and civil penalties. It also seeks disgorgement of all investor funds or assets acquired with investor funds from relief defendant Brian Merklinger.

“Paul Merklinger preyed on the goodwill of investors by telling them that they were making an investment that would be good for the environment. Unfortunately, as alleged in our complaint, the only environment Mr. Merklinger was improving was his own when he used investor funds to buy luxury automobiles, purchase posh offices, and decorate his home,” said Tim Warren, associate regional director of the SEC’s regional office in Chicago.