The retooled SEC enforcement program is filing more cases and securing judgments for more dollars than in prior years according to the statistics (here). A significant component of those statistics is investment fund fraud actions. Once considered difficult to discover these cases have in recent months become a key staple of SEC Enforcement. These cases and the disgorgement and penalties secured typically in settlement represent one of the largest single components of the improved statistical performance. This point is well illustrated by the enforcement cases reported yesterday by the SEC – one new case and three settled actions. All are investment fund fraud actions:
SEC v. Clements, Civil Action No. 11-cv-60673 (S.D. Fla. Filed March 30, 2011) is an action against James Clements and Zeina Smidi. The defendants operated a Ponzi scheme through a number of entities they controlled, according to the SEC. From 2005 through 2006 investors were lured to part with their money with claims of guaranteed monthly returns as high as 111%. Those returns were supposed to come from trading foreign currencies. The defendants, who enlisted some investors to be “account managers,” claimed to have a track record of success In mid-2007 investors were told that the currency trading would end in favor of placing funds with the best Swiss banks and advisors. The investments would be set up in a fixed rate account with a one year holding period earning up to 25% annually. Alternatively, investors could select a high yield savings account that earned up to 15% annually and permitted monthly withdrawals. In reality the investment claims were false. The defendants siphoned off much of the investor money for personal use. The SEC’s complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The case is in litigation.
SEC v. LandOak Securities LLC, Civil Action No 3:08CV209 (E.D. TN Filed May 23, 2008) is an action against the firm, a registered investment adviser, Patrick Martin, an owner and associated person, and Michael Atkins, a former owner and associated person. The complaint alleged violations of Advisers Act Sections 204, 206(1), 206(2), 206(4) and 207. It claims that beginning in 1997 and continuing into the next year the individual defendants sold $3.6 million in promissory notes and membership interests to thirty-five investors in LandOak Mortgage, LLC, an entity they founded and controlled to thirty-five investors. Thirteen of those investors were LandOak clients. Investors were told their funds would be used in a real estate development. Between July 2002 and January 2003 the complaint claims that Messrs. Martin and Atkins misappropriated most of the investor funds. The company and Mr. Martin settled with the Commission. Each consented to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. In addition, the company and Mr. Martin were ordered to pay disgorgement of $880,512.16 along with prejudgment interest. If the parties do not agree on a civil penalty the Commission will file an appropriate motion with the court.
SEC v. Navigators International Management Co., Ltd., Case No. 07-cv-04518 (S.D.Tx. Filed Dec. 27, 2007) is an action against the company, James Spurger and Benjamin Young, Jr. The complaint, which alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b) and 15(a), centers on two fraudulent unregistered offerings of securities. One involved the sale of participations in a bond program in 2005 while the second was based on the sale of stock in a company through the internet based on material misrepresentations. In addition, a scheme that was on-going at the time the complaint was filed offered to sell unregistered “ZCASH” electronic tokens on a website. The tokens were suppose to pay exorbitant returns and rebates. The company and Mr. Spurger settled, consenting to the entry of permanent injunctions prohibiting future violations of the sections cited in the complaint. In addition, the company was ordered to pay a penalty of $45,000 while Mr. Spurger will pay $25,000. Disgorgement was not ordered.
SEC v. Aerokinetic Energy Corp., Civil Action No. 8:08-CV-1409 (M.D. Fla. Filed July 28, 2008) is an action against the company and its president Randolph Bridwell. Defendants raised approximately $535,000 from 24 investors between September 2006 and the time the complaint was filed in a fraudulent offering of company shares. Investors were told that the company had developed a new green technology that created inexpensive electrical energy and that it had patents and orders to purchase the finished product. All of these claims were false, according to the Commission. Defendant Bridwell is alleged to have misappropriated much of the investor funds for his personal use. The complaint alleged violations of Securities Act sections 5 and 17(a) and Exchange Act Section 10(b). Each defendant settled, consenting to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. In addition, the final judgment imposes, jointly and severally, an obligation to pay disgorgement of $555,000 along with prejudgment interest. The company was ordered to pay a civil penalty of $250,000 while Mr. Bridwell is required to pay $130,000.