Oscar Villarreal

The Securities and Exchange Commission says Oscar Villarreal, pictured on the right, lied to Cleveland investors about three investment offerings, which attracted millions of dollars. The SEC filed a civil lawsuit against Villarreal on Tuesday. (Bob Migra)

CLEVELAND, Ohio -- The Mexican entrepreneur who convinced dozens of Cleveland's business elite to contribute millions to his investment funds is a fraud, a lawsuit filed Tuesday by the Securities and Exchange Commission alleges.

The SEC's suit asserts that 29-year-old Oscar Villarreal, who until recently lived in Gates Mills, swindled 51 investors – most of whom are from Northeast Ohio – out of more than $18 million through three investment offerings between 2009 and 2013.

The Northeast Ohio Media Group reported last September that several Cleveland businessmen were worried about their investments and that Villarreal's funds were the subject of FBI and SEC inquiries.

The SEC suit alleges that Villarreal lied to investors, telling them that their money would be used to make investments in oil-related companies doing business in Mexico. But Villarreal, the suit contends, used a large portion of investors' money to make trades in the stock market and that he spent millions on personal items and debts and on companies he owned unrelated to the funds. The suit says Villarreal lost millions in the stock market while continuing to represent his funds as profitable. (You can read the suit here.)

The suit doesn't name any of the investors but the Northeast Ohio Media Group identified a few last September through interviews and Villarreal's investment documents.

Among those who first appeared on the "advisory board" of one of Villarreal's funds are: Albert Adams, a partner at BakerHostetler; James C. Boland, a retired partner at Ernst & Young and former president of the Cavaliers who is chairman of JobsOhio, the state's newly created non-profit economic development agency; Michael Clegg, the past president of Ostendorf Morris Company; and Christopher M. Connor, chairman and chief executive of The Sherwin-Williams Co., who is also immediate past chairman of the Greater Cleveland Partnership.

Among those listed in documents as members of the same fund's "investment advisory committee" are: Matthew W. Crawford of Park-Ohio Holdings Corp; Michael T. Novak of Wellspring Financial Advisors; and Steven Rosen of Resilience Capital Partners.

Other well-known investors include A. Malachi Mixon III, chairman and chief executive of Invacare; Jack Kahl, who previously sold the company that produced Duck brand duct tape; BakerHostetler partner Jose Feliciano, and developer and attorney John Carney. (All those named in the paper but Carney and Boland declined to comment last September. )

The SEC suit says that Villarreal initially duped six investors by paying them a 30 percent return on their investments, which helped induce them to invest more into another fund and to help solicit money from a larger group of Cleveland businessmen.

Villarreal, a personable guy written up in the business press as a rising star, won over investors by running in their circles and holding out an elite pedigree, according to the suit and additional reporting. Villarreal lived among some of his clients in the wealthy East Side hamlet of Gates Mills, attending charitable events and joined civic organizations. In 2011, he hosted a reception for the Cleveland International Piano Competition at his home, which features a large pipe organ.

The Northeast Ohio Media Group learned last year that Villarreal attended Baldwin Wallace University but did not graduate. He transferred credits from Cuyahoga Community College, Kent State and Cleveland State, according to a Baldwin Wallace representative contacted last September.

The suit says the first six investors gave Villarreal about $550,000 in 2008 to invest in surplus metal products in Mexico for resale. The fund was called WW Capital Partners II, or Fund II. Villarreal then gave the six investors $715,000, which represented a 30 percent return. The suit says the money, however, didn't actually come from the resale of metal products but from Villarreal's own income and a personal line of credit.

The big returns made it easier for Villarreal to convince the six investors and others to plow millions more into a new fund called WW Capital Partners III, or Fund III, the suit alleges. This fund raised $9.2 million from 46 investors. Villarreal said the money would be used for private equity investments in petroleum, steel and real estate industries in Mexico. The suit says he lied and actually used nearly $6 million from the fund to pay off $600,000 in personal credit cards, pay his mortgage and buy a car. (He used $104,000 from the new fund to buy a BMW.)

"In letters and reports and during meetings with investors from August 2009 until at least August 2013, virtually everything Villarreal told investors about the Fund III was a lie: how he spent Fund III's assets, what assets he claimed Fund III owned, and the value of these assets and the investors' Fund III LP units," the suit reads.

In January 2012, for instance, Villarreal told Cleveland investors that Fund III partially owned an oil-drilling company that was set to get contracts with a large Mexican oil-company and the contracts would be worth tens of millions. But Fund III never owned a part of the company. Villarreal owned it through other companies not related to the investment fund. An investigation by the Mexican oil-company found that Villarreal lied about his oil-drilling business by concocting contracts and invoices and even inventing a fake employee, the SEC suit states.

Villarreal also raised $9 million from 11 investors – six of whom invested in the Fund III – to invest in companies listed on the Mexican stock exchange, according to the suit. The fund was called Standard Asset Management Fund I, or SAM.

"To accomplish this, Villarreal solicited his Fund III investors whom he knew mistakenly believed that Fund III had profitably invested in Mexico," the suit reads.

The SEC suit says Villarreal stole at least $327,000 of the assets and lost all but about 20 percent of the original investment in SAM.

The third investment scheme involved Villarreal's efforts to get SAM investors "to exchange" their SAM shares for his Fund III shares, which were worthless at the time, the suit says.

In February, Villarreal paid back the investors, at least their original investment, but he refused to tell them where the money came from, according to the SEC suit. The suit says that Villarreal repaid the investors with money loaned to one of his Mexican drilling companies not connected with the investment funds. The suit doesn't offer any specifics about the repayments or say anything about whether the money has to be returned.

Villarreal, who first moved to the Cleveland area in 2002, moved back to Mexico last September, according to the SEC suit. The Northeast Ohio Media Group is trying to reach investors and will add them when they become available.

Cleveland attorney John McCaffrey is representing Villarreal. McCaffrey said he is still reviewing the SEC complaint and has no comment at this time.

Former Plain Dealer columnist and editorial director Brent Larkin contributed to this report.