SEC: Local firm defrauded more than 400

State officials said Wednesday that they are willing to work with federal prosecutors should they choose to press criminal charges against three principals of a Costa Mesa-based biotech firm accused of defrauding hundreds of people out of millions of dollars.

Lincoln Funds, formerly Brookstone Capital, is accused of defrauding more than 400 people into investing $21 million in the company, which was supposed to invest the money in biotechnology companies, according to a Securities and Exchange Commission complaint filed last week. The company renamed itself to conceal criminal charges against one of the proprietors, SEC officials said.

“They were having trouble raising money because of the disciplinary action against them, so they just changed their name to Lincoln Funds,” said Diana Tani, an SEC spokeswoman.

Robert L. Carver, 53, of Irvine; his son, Robert L. Carver II, 34, also of Irvine; and James L. DeMers, 64, of Cerritos, were named in the lawsuits filed by the SEC and the California Department of Corporations. The lawsuit requested all assets of Lincoln Funds International be frozen.

The defendants also allegedly lied to investors about their firm being offered publicly, and made baseless promises to investors that they would see large profits, according to the SEC complaint.

The group used money from its new crop of investors to pay back old debts, said Mark Leyes, a spokesman for the state Department of Corporations.

“The irony was, if they had just said what they were going to do, it isn’t illegal,” Leyes said. “They never followed through on any of the promises, so you get to the point of misrepresentation. And in the criminal court we call that fraud,” he said.

The men are also accused of siphoning more than $2 million of the $21 million investors gave to their companies. Efforts to reach the defendants’ lawyers were unsuccessful.

ALAN BLANK may be reached at (714) 966-4623 or at [email protected].