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The U.S. Securities and Exchange Commission filed a civil lawsuit this week against Scott M. Ross of far northwestern Gilberts, alleging the private fund operator fraudulently solicited at least $10 million in investments from about 300 investors and then misappropriated the money.

In a complaint filed Tuesday in federal court in Chicago, the SEC alleges that the 40-year-old Ross formed three funds and then misused the money he had taken in from his investors.

Beginning 2007, the complaint says, Ross began raising money for a new investment fund known as Elucido Fund LP, which would pool investors' money and make investments in "life settlement contracts." (Such contracts, a significant business in the U.S., involve the purchase by third-party investors of life insurance policies held by elderly people who can't afford to continue paying premiums or no longer feel the need to. The buyer pays future premiums and becomes the beneficiary once the senior citizen dies.)

Elucido raised about $1.9 million, the government alleges.

At the same time, the lawsuit contends, Ross also begain raising money from other investors for a separate investing pool known as the "Moondoggie Fund," which was to buy shares of a small company that promised to repurchase all the shares at a higher price in the future. Moondoggie raised about $2 million, according to the lawsuit.

Ross also raised $6 million to $7 million with the Maize Fund LP, which he said would be used by a professional trader to make foreign-exchange currency trades.

According to the government, however, Ross used "none of the money" raised by Elucido to buy the life contracts. Instead, it alleges, that he dipped into the Elucido money to cover bigger-than-expected costs his Maize fund had encountered.

He also used as much as $700,000 of the Elucido investors' money to repay Moondoggie investors who demanded their money back after growing suspicious that the promised profits wouldn't be forthcoming.

Then, in December 2008, the government asserts, Ross – who allegedly never purchased a single life-settlement policy -- sent Elucido holders a letter that falsely claimed that "the partnership's general partner has made the decision to wind-down the partnership's investment program by Dec. 31" and promising the investors that they should receive their capital in six months.

"By the time he sent the December 2008 letter to Elucido investors," the complaint says, "Ross had already fully depleted the fund's assets."

In late January, the government alleges, the chief trader Ross had hired to make trades for the Maize fund told Ross she wished to end her association with the fund "immediately." Since her departure, the suit says, the Maize assets are at risk because the money isn't being managed by an experienced trader. The suit doesn't say how much money remains in the Maize fund's various foreign-exchange accounts.

In a statement, the SEC said U.S. District Judge James B. Zagel issued an order that freezes Ross's assets and named an outside law firm to act as receiver in the matter.

The government is asking the court, among other things, to order Ross to disgorge the money he allegedly misappropriated.

Ross's attorney, Mark Rotert, declined immediate comment.