Heller took $185M from investors for himself, companies as part of ATM investment scheme, SEC says

• By Chad Umble / LNP | LancasterOnline

Lancaster County businessman Daryl Heller funneled $185 million from ATM investments into his own pockets and his other businesses, the federal Securities and Exchange Commission said in a civil complaint filed last week.

Faked documents, non-existent ATMs passed off as generating money, an ATM portal meant to dupe investors at a presentation and junk ATMs sold to investors at a 4,000% markup were all part of the scheme that enriched Heller but left investors holding a bag of worthless IOUs. The multi-year investment scheme allegedly defrauded investors of more than $400 million, the SEC said in its Sept. 3 filing.

For the first time, the filing – which came at the same time as Heller’s arrest on separate federal fraud charges – offers an accounting of how much Heller pulled from the ATM investments while providing new details of how he orchestrated the alleged scheme.

Between 2017 and 2023, the SEC says Heller and his ATM companies raised $770 million from 2,700 investors. Heller funneled a big chunk of that investor money to himself and some of his other companies, including $92 million sent to an unrelated ATM company, $27 million that was transferred to two of his cannabis businesses and $3.8 million he used to pay a personal tax bill.

In addition, the SEC highlights the $1.5 million that Heller used to buy part of a beach house in New Jersey that came from Paramount Management Group, his company that managed ATMs for investors and made payments to them.

The SEC complaint names Heller along with Paramount and Prestige Investment Group, but says Heller controlled both companies as well as the flow of information between them – a claim that Heller and his attorneys have attempted to counter in court filings related to his personal bankruptcy case.

“Heller had access to the offices, books and records and bank accounts of both Prestige and Paramount. Employees for Prestige and Paramount followed Heller’s direction,” the complaint says.

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READ: Daryl Heller released on bail after debate about flight risk

READ: Daryl Heller pleads not guilty to federal charges; bail hearing set for Friday

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Misappropriation of funds

From 2017 through March 2024, Heller’s Paramount distributed $397 million to investors in the ATM network it managed even though those ATMs generated only $28.6 million in net operating income, the complaint says.

“Because the ATM network did not generate sufficient profits to fund investor distributions, the Defendants primarily relied on new investor capital to cover the massive shortfall,” the complaint alleges.

The SEC says Heller also used money from short-term loans and merchant cash advances to cover the shortfall.

That cash flow structure was outlined in an August report by the examiner in Heller’s bankruptcy case, and the move to recruit new investors by lying about the business was also the basis for the federal securities and wire fraud charges outlined in last week’s indictment.

Yet, even as Heller worked to bring in enough money to pay investors, he was transferring investors’ money to some of his other companies, including $92 million he sent to a family of companies referred to as Blackford. Some of that $92 million was used to pay Blackford’s debts and operating expenses while some of those funds were sent to other entities controlled by Heller, the SEC says.

Blackford ATM Ventures, which consists of six related entities, is registered in Delaware but did business from Heller’s former Lancaster city offices. Blackford originated when Heller agreed to buy roughly 5,000 ATMS in July 2022 from the estate of Richard Welkowitz, a Lancaster developer and ATM owner who died in December 2019. In February, Blackford was forced into bankruptcy in Delaware by a creditor looking to collect a $28.5 million debt.

In addition to siphoning off money for himself and his companies, the SEC says Heller also caused about $60 million in payments to be made to the fund managers who were largely responsible for recruiting new investors. Such “margin payments” were only supposed to come from excess profits from the ATMs, but they continued to be paid even though there was never any excess revenue from ATMs and investors were in danger of not being paid. The ATMs instead had a huge shortfall.

Heller himself collected $8.2 million in such margin payments, the SEC says.

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READ: Read the federal indictment against Lancaster County businessman Daryl Heller

READ: Read the Securities and Exchange Commission civil charges against Daryl Heller

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Doctored documents

Heller went to great lengths to conceal the fact that the ATMs weren’t generating nearly enough in surcharge fees to cover monthly payments to investors, the SEC complaint says. Heller made phony reports about the performance of ATMs and also doctored profit and loss statements shared with investors.

In one case, Heller tried to make his ATM network look better by rigging an interactive ATM portal that was created for a presentation for investors, the SEC says.

Investors attending the event at Paramount offices in Lancaster were told that the portal contained information about all of the ATMs in the network. They were then invited to select any machine at random to see how much money it was making from surcharge fees.

Heller had instructed a Paramount employee to rig the portal so that it only showed several hundred of Paramount’s best-performing ATMs, the SEC says.

“Heller did not disclose to the investors that they were ‘randomly’ selecting from the cherry-picked subset of ATMs, so that any ATM selected would be assured to be high performing,” the SEC complaint says.

The SEC also says Heller doctored some key documents that bought him extra time just before Paramount collapsed last December.

In an effort to end the initial investor lawsuit, Heller promised to make a buyout of all the investors by late November 2024. Some purchase agreements Heller sent to investors’ representatives before the buyout deadline indicated that there was a buyer for the ATMs.

But the SEC says those purchase agreements were doctored, while adding that during the extra time the promised sales agreement bought him, Heller sold some ATMs belonging to the investors and didn’t give the investors any of the proceeds.

When Heller didn’t make the promised buyout by the deadline, investors were given control of all of his ATMs and won a $138 million judgment against Paramount. Two weeks after the missed deadline for the buyouts, FBI agents raided the Lancaster city offices of Paramount. Just over a week after that raid, Paramount fired all its remaining employees. Investors are still waiting for their payout.

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READ: How long might Daryl Heller spend in prison if he’s convicted of fraud in ATM case?

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Sales of old ATMS

While Paramount actually managed some ATMs, it was never nearly as many as Heller was telling investors, the SEC says.

For example, in the third quarter of 2023, the SEC says investors got notices showing that their funds had 27,807 ATMs in service. But at the time, Paramount’s internal documents provided to Heller only reflected 17,244 ATMs in the network.

The SEC says that Heller only ever used a fraction of investor funds to purchase ATMs, and even when cash machines were bought, they were sometimes basically junk.

“Heller directed Paramount to use investor monies to buy inexpensive ATMs or used and, at times, damaged ATMs with missing keyboards and hard drives, at prices that were much lower than what Paramount reported to the ATM funds,” the SEC complaint says.

In one case between 2020 and 2021, Paramount paid $1.9 million for 3,200 ATMs, or about $527 per machine. Many of the machines were damaged or inoperable and were stored in a warehouse.

Heller then directed 2,300 of those ATMs to be sold to the Prestige investors for $52 million, or about $22,600 per machine, representing a markup of more than 4,000%.

“Paramount and Heller provided bills of sale to Prestige containing serial numbers from the ATMs, without disclosing to investors that the ATMs were sitting unused in warehouses,” the SEC complaint says. “These ATM sales to the ATM Funds generated more than $50 million for Heller and Paramount, which could be used to make payments to earlier investors in a Ponzi-like manner and/or to funnel money to Heller’s other businesses.”

By the numbers

$770M: Total raised from investors

$400M: Estimated investor losses

$185M: Funneled to Heller/Heller companies

$60M: Paid to fund managers

Source: SEC complaint