The Commission brought an action against the two principals of Brewer Investment Group, LLC (“BIG”), a financial services holding company, and its related entities centered on an alleged fraudulent offering. Specifically, the complaint claims that a fraudulent sale of unregistered securities issued by an Isle of Man entity was made by the defendants and that the proceeds were used to try an prop up financially struggling BIG. SEC v. Brewer, Case 10-cv-09832 (N.D. Ill. Filed Oct. 29, 2010).
Defendant Steve Brewer is a 25% owner, CEO and chairman of BIG. Defendant Adam Erickson also owns a stake in BIG and serves as its COO. Following its creation in late 2000, BIG and its operating subsidiaries, including a registered investment adviser and a registered broker dealer, were profitable. Its financial condition changed. By January 2009, the firm and its subsidiaries were struggling financially. In 2008, BIG suffered a $3 million operating loss. In January 2009, the firm received a default notice on a $2.5 million loan.
Beginning in June 2009, a PPM was prepared to sell notes issued by FPA Limited, an Isle of Man Company. From June 2009 through September 2010, FPA made two offerings of notes based on the PPM. One was for $15 million of three-year asset-backed promissory notes paying 8%. An additional $15 million offering of one-year asset-backed notes which paid 5% was also made. Over a period of several months, 74 investors purchased $5.6 million in notes through entities related to BIG.
The PPM was materially false and misleading, according to the complaint, in that:
- Use of proceeds: It made misrepresentations regarding the use of the proceeds by failing to tell investors that over 90% of the funds would be transferred to BIG;
- Financial condition: Investors were not told the financial condition of BIG;
- Risk of investment: The PPM implicitly and explicitly represented that the proceeds of the offering would be used to procure collateral which would secure the notes ; and
- Defaults: The defaults of BIG on its obligations were omitted from the materials provided to investors.
The complaint alleges violations of Securities Act Sections 5 and 17(a), Exchange Act Sections 10(b) and 15(c)(1) and Advisers Act Section 206. The case is in litigation. See also Litig. Rel 21715 (Oct. 29, 2010).