SEC FILES ACTION AGAINST NEW JERSEY RESIDENT IN ALLEGED PRIME BANK INVESTMENT SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges New Jersey Resident in Prime Bank Investment Scheme and Files Settled Charges Against California Attorney Escrow Agent

On September 27, 2013, the Securities and Exchange Commission filed an enforcement action in the U.S. District Court for the District of New Jersey against New Jersey resident Brett A. Cooper and his companies Global Funding Systems LLC, Dream Holdings, LLC, Fortitude Investing, LLC, Peninsula Waterfront Development, LP and REOP Group Inc., who from at least November 2008 through about April 2012 perpetrated three fraudulent schemes and engaged in various fraudulent and deceitful acts, practices and courses of business in furtherance of those schemes.

The SEC’s complaint alleges that, in the first scheme, commonly referred to as a “Prime Bank Fraud”, Cooper raised approximately $1.4 million from investors by claiming to have special access to programs that through pooling of funds allowed individual investors to participate in this investment opportunity generally available only to Wall Street insiders. Cooper misrepresented to investors that the financial instruments are issued by the world’s largest and most financially sound banks; used vague, complex, and meaningless legal and financial terms designed to deceive the investors into believing that he offered legitimate investments; misrepresented that extraordinary returns of up to 1,000 percent within as little as 60 days were possible with little risk to principal; lied to investors that their principal would be collateralized with cash or semi-precious gemstones; and lied that their money would remain safe in escrow with attorneys pending the completion of certain steps in the transaction.

In the second scheme, also purportedly involving investment in prime bank paper, Cooper offered to participate as an investor in the purchase and trade of a $100 million bank guarantee on the condition that all investor funds were pooled in an attorney client trust account. Cooper sent a forged escrow agreement, purportedly from an attorney, containing wiring instructions for the attorney client trust account. The wire instructions, however, were for an account controlled by Cooper, not an attorney acting as escrow agent. The four investors unwittingly deposited a total of $925,000 in the phony escrow account which was, in fact, for Cooper’s company Dream Holdings, after which Cooper misappropriated the funds.

In March 2012 Cooper and his company REOP participated in a third scheme involving the sale of a purported Brazilian sovereign bond. Cooper claimed that, in exchange for a $50,000 “fee”, he would locate a buyer for the bond and open an account at a registered broker-dealer, which Cooper claimed was necessary to sell the bond. Cooper forged a letter that purported to be from the broker-dealer indicating that the bond had been “accepted” by the broker-dealer. Based upon this letter, the deceived investor paid Cooper’s $50,000 “fee”.

According to the SEC’s complaint, Cooper used the investor money to pay personal expenses, buy cars, pay associates in the scheme, and fund frequent gambling junkets to casinos in Las Vegas and Atlantic City.

The SEC’s complaint alleges that, despite his offering and selling of securities, Cooper has never been registered with the SEC to sell securities.

The SEC’s complaint alleges that Cooper and his companies violated the antifraud and broker-dealer registration provisions of the federal securities laws. Specifically, the complaint alleges that they each violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; that Cooper aided and abetted violations of Securities Act, Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5; and that Cooper also violated Exchange Act Section 15(a). The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties against each defendant.

Also on September 27, 2013, the SEC charged California attorney David H. Frederickson, a sole practitioner, and his law firm The Law Offices of David H. Frederickson, with aiding and abetting Cooper’s prime bank scheme in two transactions in 2010 and 2011.

According to the SEC’s complaint filed separately in the U.S. District Court for the District of New Jersey, Frederickson served as escrow agent for two of Cooper’s prime bank transactions, and provided letters to investors stating that their investments were secured by collateral owned by Cooper’s company Global Funding Systems LLC. Frederickson did nothing to verify the value, authenticity, or ownership of the collateral, which Cooper claimed to be seven sapphires valued at $376 million. The SEC’s complaint also alleges that by the time Frederickson served as escrow agent for the second of these investors, Frederickson had learned facts indicating that Cooper had affixed Frederickson’s electronic signature to a forged escrow agreement that caused investor funds to be diverted to another Cooper company instead of being sent to Frederickson’s escrow account. Moreover, Frederickson told this second investor that he had served as escrow agent for Cooper in numerous other successful bank instrument trading transactions. In fact, none of the bank instrument trading transactions had been successful.

Frederickson earned a total of $6,790 in escrow fees for these transactions and for a transaction involving an escrow agreement Cooper forged, for which Frederickson provided no escrow services. These fees were paid from the funds of the defrauded investors.

Without admitting or denying the SEC’s allegations, Frederickson and his firm agreed to settle the case against them. The settlement is pending final approval by the court. Specifically, Frederickson and his firm consented to the entry of a final judgment that (1) permanently enjoins each of them from violating or aiding and abetting violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; (2) permanently enjoins each of them from providing professional legal or escrow services in connection with, or from participating directly or indirectly in, the issuance, offer, or sale of securities involving bank guarantees, medium term notes, standby letters of credit, structured notes, and similar instruments, provided, however, that such injunction shall not prevent Frederickson from purchasing or selling securities listed on a national securities exchange; and (3) orders them to pay, jointly and severally, disgorgement and prejudgment interest totaling $7,257, and a civil penalty in the amount of $25,000, for a total of $32,257.

As part of the settlement, and following the entry of the proposed final judgment, Frederickson, without admitting or denying the Commission’s findings, has consented to the entry of a Commission order pursuant to Rule 102(e)(3) of the Commission’s rules of practice permanently suspending him from appearing or practicing before the Commission as an attorney.

The SEC’s complaints in these matters allege fictitious investments involving so-called "bank guarantees," “stand-by letters of credit,” or foreign “trading platforms,” among other purported investment vehicles.