SEC SAYS "FINANCIER" CHARGED IN ALLEGED PONZI SCHEME INVOLVING PROMISSORY NOTES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Thursday, February 26, 2015

California Financier Charged in Alleged Ponzi Scheme

Former CEO and Corporate Counsel of Financial Services Marketing Company Previously Pleaded Guilty

A California man and purported billionaire financier was taken into federal custody today for his role in an alleged Ponzi scheme in which investors lost $2.5 million, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Inspector in Charge Gary Barksdale of the U.S. Postal Inspection Service’s Criminal Investigations Group.

Kenneth Brewington, 50, of Corona, California, was indicted on Feb. 24, 2015, by a federal grand jury in the District of Colorado for conspiracy to commit wire and mail fraud, mail fraud and six counts of wire fraud.

According to allegations in the indictment, from September 2009 until 2011, Brewington and his co-conspirators sold promissory notes to investors through a financial services marketing company based in Denver called Compass Financial Solutions (CFS).  The indictment alleges that Brewington and his co-conspirators falsely represented to investors that Brewington held millions of Euros in overseas bank accounts, and that the proceeds raised from investors would be used to obtain the release of his overseas funds.  To conceal the scheme, Brewington and his co-conspirators allegedly had investors wire their funds to an attorney trust account.  The funds from that account, however, were then allegedly sent to Brewington and his co-conspirators.  Brewington and his co-conspirators allegedly used the investors’ money for their own personal benefit.

The former corporate counsel for CFS, William E. Dawn, 77, of Denver, and the former CEO of CFS, Brian G. Elrod, 58, of Lakewood, Colorado, previously pleaded guilty for their roles in the scheme.  Sentencing hearings are scheduled for May 29, 2015, and May 22, 2015, respectively.

The charges contained in an indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

The case was investigated by the U.S. Postal Inspection Service, and is being prosecuted by Trial Attorneys Henry P. Van Dyck and Jennifer G. Ballantyne of the Criminal Division’s Fraud Section.  The Securities and Exchange Commission has provided substantial assistance in this matter.

SEC ACCUSES BUSINESSMAN AND COMPANY OF MAKING FALSE STATEMENTS TO INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced securities fraud charges accusing a New York businessman and his software company of making false statements to investors while raising more than $3 million to fund operations.

The SEC’s Enforcement Division alleges that Gregory Rorke falsely told investors that he possessed millions of dollars in liquid assets to personally guarantee their purchase of promissory notes issued by Navagate Inc., which claimed to create and sell computer software to help companies automate certain processes in sales and customer relations.  Rorke emphasized that he was an experienced businessman and former professor at Columbia Business School, and he signed and distributed a personal financial statement to investors.  However, virtually all of the liquid assets and real estate he claimed as his own in the financial statement actually belonged solely to Rorke’s wife, who did not pledge any of her assets in connection with the securities offering and had no obligation to make good on Rorke’s personal guarantee.  Ultimately, Navagate defaulted on the notes and Rorke did not adhere to his promise to pay investors under his personal guarantee.

The SEC’s Enforcement Division further alleges that when asked for proof that he owned one of the main pledged assets, Rorke covered up his lie by tampering with an account statement to hide the fact that the account belonged solely to his wife.  Rorke also initially failed to disclose and later materially understated the extent of corporate tax problems at Navagate, which owed at least $1 million in payroll taxes to the IRS for which Rorke was personally liable.  As Rorke faced pressure from investors to pay down this liability, he lied in a sworn affidavit that he had sent the IRS a check for $350,000.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Rorke, who lives in Bronxville, N.Y.

“Rorke comforted investors with a personal guarantee to back their investments in Navagate with his own pledged assets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Yet he repeatedly made false statements about his ownership of the pledged assets, even tampering with documents to cover his tracks.”

In a separate administrative proceeding, the SEC’s Enforcement Division filed charges against Gregory Osborn and his New Jersey-based broker-dealer Middlebury Securities LLC, which served as the placement agent in selling Navagate securities.  The SEC’s order states that Osborn and Middlebury Securities repeatedly assured investors that Rorke’s personal guarantee was a good reason to enter into the deal despite knowing or recklessly disregarding that Rorke’s claim was false and he did not solely possess the assets listed in the personal financial statement.  Osborn and Middlebury Securities also orchestrated payments to some earlier Navagate investors by fraudulently using proceeds from additional investors despite knowing or recklessly disregarding that such payments are not permitted.
Osborn and Middlebury Securities agreed to partially settle the case against them with disgorgement and penalties to be determined at a later date.  Osborn agreed to be permanently barred from the securities industry and Middlebury Securities agreed to be censured.  They each consent to the entry of injunctions barring them from violating or causing violations of the federal securities laws.

“Osborn and Middlebury Securities collected significant placement agent fees while boldly highlighting Rorke’s personal guarantee and assuring investors it was a sound investment opportunity,” said Amelia A. Cottrell, Associate Director of the SEC’s New York Regional Office.

The SEC’s orders allege that Rorke, Navagate, Osborn, and Middlebury Securities violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Rorke also is charged with causing Navagate’s violations of those provisions, and Osborn and Middlebury Securities are charged with willfully aiding and abetting and causing Navagate’s violations.

The SEC’s investigation was conducted by Lara Shalov Mehraban, Jorge Tenreiro, Alexander Janghorbani, and Michael Birnbaum in the New York office, and supervised by Ms. Cottrell.  The SEC’s litigation will be led by Mr. Janghorbani and Mr. Tenreiro.  The examination of Middlebury Securities that led to the investigation was conducted by Steve Vitulano, Michael J. McAuliffe, Simone Celio Jr., and Sean M. O’Brien.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the Federal Bureau of Investigation, and the U.S. Attorney’s Office for the Southern District of New York.

SEC ANNOUNCES FRAUD CHARGES, EMERGENCY ASSET FREEZE RELATED TO ALLEGED REAL ESTATE INVESTMENT SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against a group of Pasadena, Calif.-based companies at the center of an ongoing real estate investment scheme.

The SEC alleges that Yin Nan (Michael) Wang and Wendy Ko have raised more than $150 million from approximately 2,000 investors by selling promissory notes issued through Velocity Investment Group, which manages a series of investment funds entitled the Bio Profit Series.  Each of the Bio Profit Series funds purports to be primarily in the business of making real estate-related loans in California, but in reality Wang and Ko have used money received from newer investors to make the promised quarterly interest payments to earlier investors in Ponzi-like fashion.

“The SEC sought emergency action to prevent the further dissipation of investor assets through an expected set of upcoming Ponzi-like payments,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Wang falsified financial records and used another company to create the illusion of legitimate economic activity.”

According to the SEC’s complaint unsealed today in U.S. District Court for the Central District of California, Wang and Velocity Investment Group have been raising money since at least 2005.  Wang is the sole owner of Velocity Investment Group, and the Bio Profits Series fund accounts are controlled by Wang and Ko, who transferred some investor funds to make quarterly interest payments to other investors. The SEC’s complaint says Wang has admitted that Velocity was using new investor money to pay earlier investors.

The SEC alleges that Wang directed one of the Bio Profit Series funds to provide its outside accountant with inaccurate financial information that materially overstated its mortgage loans receivable and mortgage income figures.  The more than $9.8 million of mortgage loan income shown in those financial statements included accrued interest that Wang knew that the fund would never actually receive. Wang told Velocity’s accounting manager that investors would flee if they were told the true numbers, and it would be difficult for him to raise money.

The SEC further alleges that Wang and Ko used transactions between the Bio Profit Series funds and another company charged in the complaint – Rockwell Realty Management – with the apparent purpose of concealing the fraud.  These transactions appear to have had no purpose other than to obfuscate the amount of transfers among the various funds.

The SEC’s complaint charges Wang and his companies as well as Ko with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The Honorable John A. Kronstadt of the U.S. District Court for the Central District of California granted the SEC’s request for a temporary asset freeze against Velocity, Bio Profit Series I, Bio Profit Series II, Bio Profit Series III, Bio Profit Series V, and Rockwell Realty Management.  Judge Kronstadt’s order prohibits the destruction of documents, requires the defendants to provide accountings, and allows expedited discovery.  A court hearing has been scheduled for December 9 on the SEC’s motion for a preliminary injunction.

The SEC’s investigation was conducted by M. Lance Jasper, Peter F. Del Greco, and Dora Zaldivar in the Los Angeles office.  The SEC’s litigation will be led by Lynn M. Dean and David J. Van Havermaat.

SEC ANNOUNCES JURY VERDICT AGAINST ALL DEFENDANTS IN OFFERING FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Jury Verdict in Its Favor Against All Defendants On All Counts

The Securities and Exchange Commission announced today that, on October 10, 2013, a jury in the Eastern District of Tennessee, Knoxville Division, returned a verdict against AIC, Inc., Community Bankers Securities, LLC, and Nicholas D. Skaltsounis on all counts.  Defendant AIC was a financial services holding company for three broker-dealers and an investment adviser based in Richmond, Virginia.  Defendant Community Bankers Securities was one of the subsidiary broker-dealers.  Defendant Skaltsounis was the founder, President, and Chief Executive Officer of AIC and Community Bankers Securities.  The Commission’s complaint, which was filed in April 2011, alleged that Skaltsounis devised and orchestrated an offering fraud by offering and selling millions of dollars of AIC promissory notes and stock.

The complaint alleged that, from at least January 2006 through November 2009, Skaltsounis, directly and through registered representatives associated with Community Bankers Securities, offered and sold AIC promissory notes and stock to numerous investors across multiple states, many of whom were elderly, unsophisticated brokerage customers of CB Securities.  The Defendants misrepresented and omitted material information to investors relating to, among other things, the safety and risk associated with the investments, the rates of return on the investments, and how AIC would use the proceeds of the investments.  AIC and its subsidiaries were never profitable.  AIC earned de minimis revenue, and its subsidiaries did not earn sufficient revenue to meet their expenses.  The Defendants used money raised from new investors to pay back principal and returns to existing investors.  

Prior to trial, the United States District Court for the Eastern District of Tennessee granted the Commission’s motion for partial summary judgment and found in favor of the Commission on its claims against AIC, Community Bankers Securities, and Skaltsounis under Sections 5(a) and 5(c) of the Securities Act of 1933.  The court also found in favor of the Commission on its claims against three relief defendants, Allied Beacon Partners, Inc. (f/k/a Waterford Investor Services, Inc.), Advent Securities, Inc., and Allied Beacon Wealth Management, LLC (f/k/a CBS Advisors, LLC), all of which were subsidiaries of AIC and all of which received proceeds from the Defendants’ illegal and fraudulent conduct.  In addition, prior to trial, two co-defendants, John B. Guyette, of Greeley, Colorado, and John R. Graves, formerly of Pensacola, Florida, and now incarcerated at the Federal Detention Center at Oakdale, Louisiana, both of whom were participants in the scheme, entered into settlement agreements with the Commission.  A final judgment ordering injunctive relief, disgorgement of ill-gotten gains, and civil penalties was entered against Guyette, and a final judgment ordering injunctive relief and civil penalties was entered against Graves.

At the conclusion of the almost three-week trial, the jury returned a verdict for the Commission and against Defendants AIC, Community Bankers Securities, and Skaltsounis on all of the remaining claims.  In particular, the jury found in favor of the Commission on its claims under Section 17(a) of the Securities Act and under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In addition, the jury found in favor of the Commission on its claims against Defendants AIC and Community Bankers Securities under Section 20(a) of the Exchange Act and against Skaltsounis under Section 20(e) of the Exchange Act.

The trial team from the Commission’s Philadelphia Regional Office consisted of trial attorneys Michael J. Rinaldi, John V. Donnelly III, G. Jeffrey Boujoukos, and Scott A. Thompson and trial paralegal Nichelle Pridgen.

SEC CHARGES MAN AND COMPANY WITH OPERATING FRAUD SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged Appleton, Wisconsin resident Robert Narvett and his company Shield Management Group, Inc. ("Shield") with fraud, alleging that he operated a scheme that raised at least $940,000 from twenty investors.

In a complaint filed on August 16, 2013, filed in the U.S. District Court for the Eastern District of Wisconsin, the SEC alleges that beginning in at least March 2010, Narvett raised funds though the fraudulent offer and sale of promissory notes issued by Shield.

The SEC alleges that in exchange for their money, Narvett guaranteed investors that they would receive their principal investment plus a twenty percent return at the end of a specified term. Although he provided few details regarding how he would use their funds, Narvett told some investors that he would use the money as working capital to build Shield's business.

According to the SEC's complaint, instead of using investor money for Shield's business, Narvett misappropriated investor funds for his personal use. Narvett used investor money to, among other things, fund trading in his personal brokerage accounts, purchase a car and to pay for personal expenses such as his mortgage.

The SEC complaint alleges violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder by Narvett and Shield. As part of this action, the SEC seeks an order of permanent injunction against Narvett and Shield, the payment of disgorgement of ill-gotten gains, prejudgment interest and civil penalties.

SETTLED FRAUD AND SECURITIES CHARGES FILED AGAINST OWNER OF CONESTOGA LOG CABIN LEASING, INC.

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Files Settled Charges Against John M. Sensenig, Founder and Owner of Conestoga Log Cabin Leasing, Inc. for Fraud and Unregistered Sales of Securities Violations

On July 29, 2013, the Securities and Exchange Commission ("Commission") filed a complaint against John M. Sensenig ("Sensenig"), in the United States District Court for the Eastern District of Pennsylvania alleging that Sensenig, a member of the Mennonite community and the founder and owner of Conestoga Log Cabin Leasing, Inc. and other affiliated companies, violated the antifraud and securities registration provisions of the federal securities laws.

The Commission's complaint alleges that from at least 1997 until 2009, Sensenig raised millions of dollars from more than 1,500 fellow members of the Amish and Mennonite communities through the offer and sale of Promissory Notes. Sensenig used the proceeds to finance a collection of start-up companies he founded and controlled, the largest of which was Conestoga Log Cabin Leasing, Inc. More than half of the funds raised by Sensenig were returned to investors. The complaint further alleges that Sensenig made material misrepresentations and omissions to investors including failing to disclose the use of proceeds, the risks associated with the investment, and remedial sanctions placed on him by a state securities regulator. The Commission further alleges that Sensenig failed to register the offering of the Promissory Notes although no exemption from registration applies. The complaint alleges that this conduct violated Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act").

Without admitting or denying the allegations in the complaint, Sensenig consented to the entry of a final judgment, subject to the court's approval, in which he is: (i) permanently enjoined from further violations of Sections 5 and 17(a) of the Securities Act, (ii) permanently enjoined from direct or indirect participation in any unregistered offerings of securities; (iii) ordered to pay a civil penalty in the amount of $131,500; and (iv) ordered to surrender for cancellation all shares of stock he owns in two privately held companies formerly affiliated with Conestoga Log Cabin Leasing, Inc. The Commission is not seeking the imposition of a higher penalty in light of Sensenig's financial condition.

SEC SETTLES FRAUD CHARGES AGAINST TWO ALLEGEDLY INVOLVED IN PROMISSORY NOTE PONZI SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The United States Securities and Exchange Commission settled fraud charges against Eric R. Nelson and Kevin J. Wilcox, and obtained a default judgment against Jennifer E. Thoennes, arising from their alleged participation in a Ponzi scheme operated by Joseph Nelson. The relief obtained concludes the litigation in SEC v. Wilcox.

On December 29, 2011, the Commission charged Eric Nelson, Wilcox, and Thoennes with aiding and abetting Joseph Nelson’s Ponzi scheme, which raised at least $16 million from more than 100 people to invest in promissory notes issued by Joseph Nelson’s companies during 2007 through July 2010. Among other conduct, the Complaint alleged that Eric Nelson, Joseph Nelson’s brother, created fictitious documents that were used to mislead investors about the solvency of Joseph Nelson and his companies, including altering his brother’s bank statements to reflect balances that were far in excess of the amounts actually in his brother’s accounts. The Complaint also alleged that Wilcox and Thoennes made false and misleading statements to investors, including that Joseph Nelson and his companies owned merchant credit card portfolios, that investor funds would be used to purchase additional portfolios, and that as part owners of the merchant credit card portfolios, investors would earn a portion of the monthly residual fees generated by the portfolios.

On April 12, 2013, the Court entered a final judgment against Eric Nelson permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and finding him liable for disgorgement of $168,000 and prejudgment interest of $55,103, but waiving such amounts based on his financial condition. On February 19, 2013, the Court entered a final judgment against Wilcox permanently enjoining him from violating Sections 5 and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5, and finding him liable for disgorgement of $120,000 and prejudgment interest of $11,433, but waiving all but $23,230 of those amounts based on his financial condition. The Court did not order Nelson or Wilcox to pay a civil penalty based on their respective financial conditions. Eric Nelson and Wilcox agreed to settle the Commission’s charges without admitting or denying the allegations in the Complaint.

On December 20, 2012, the Court entered a final judgment by default against Thoennes. The judgment permanently enjoins Thoennes from violating Sections 5 and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5, orders her to pay disgorgement of $45,000 and prejudgment interest of $4,791, and orders her pay a civil penalty of $45,000.

SEC CHARGES TWO FEEDERS FOR ONE OF SOUTH FLORIDA’S LARGEST-EVER PONZI SCHEMES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 31, 2012
On May 22, 2012, The Securities and Exchange Commission charged two individuals who provided the biggest influx of investor funds into one of the largest-ever Ponzi schemes in South Florida. The SEC alleges that George Levin and Frank Preve, who live in the Fort Lauderdale area, raised more than $157 million from 173 investors in less than two years by issuing promissory notes from Levin’s company and interests in a private investment fund they operated. They used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein through his prominent law firm Rothstein Rosenfeldt and Adler PA. However, the settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein’s Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

According to the SEC’s complaint filed in federal court in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin’s company – Banyon 1030-32 LLC. In 2009, seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP that invested exclusively in Rothstein’s settlements. Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts obtained from Rothstein exceeded the rate of return promised to investors.

The SEC alleges that the offering materials for the promissory notes and the private fund contained material misrepresentations and omissions. They misrepresented to investors that prior to any settlement purchase, Banyon 1030-32 would obtain certain documentation about the settlements to ensure the safety of the investments. Levin and Preve, however, knew or were reckless in not knowing that Banyon 1030-32 often purchased settlements from Rothstein without obtaining any documentation whatsoever.
Furthermore, Banyon Income Fund’s private placement memorandum misrepresented that the fund would be a continuation of a successful business strategy pursued by Banyon 1030-32 during the prior two-and-a-half years. Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the prior settlements Levin and his entities had purchased. They also failed to inform investors that Levin’s ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

The SEC’s complaint charges Levin and Preve with violating Section 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The SEC is seeking disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by senior counsels D. Corey Lawson and Steven J. Meiner and staff accountant Tonya T. Tullis under the supervision of Assistant Regional Director Chad Alan Earnst. Senior trial counsels James M. Carlson and C. Ian Anderson are leading the litigation.

The SEC acknowledges the assistance of the Office of the United States Attorney for the Southern District of Florida, the Federal Bureau of Investigation, and the Internal Revenue Service.

SEC CHARGES TWO FLORIDA RESIDENTS WITH ALLEGED RUNNING A $157 MILLION PONZI SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 22, 2012 — The Securities and Exchange Commission today charged two individuals who provided the biggest influx of investor funds into one of the largest-ever Ponzi schemes in South Florida.

The SEC alleges that George Levin and Frank Preve, who live in the Fort Lauderdale area, raised more than $157 million from 173 investors in less than two years by issuing promissory notes from Levin's company and interests in a private investment fund they operated. They used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein through his prominent law firm Rothstein Rosenfeldt and Adler PA. However, the settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein's Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

The SEC alleges that Levin and Preve misrepresented to investors that they had procedural safeguards in place to protect investor money when in fact they often purchased settlements without first seeing any legal documents or doing anything to verify that the settlement proceeds were actually in Rothstein's bank accounts. Moreover, as the Ponzi scheme was collapsing and Rothstein stopped making payments on prior investments, Levin and Preve sought new investor money while falsely touting the continued success of their investment strategy. With their fate tied to Rothstein, Levin and Preve's settlement purchasing business collapsed along with the Ponzi scheme.

"Levin and Preve fueled Rothstein's Ponzi scheme with the false sense of security they gave investors," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "They promised to safeguard investors' assets, but gave Rothstein money with nothing to show for it."

According to the SEC's complaint filed in federal court in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin's company - Banyon 1030-32 LLC. In 2009, seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP that invested exclusively in Rothstein's settlements. Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts obtained from Rothstein exceeded the rate of return promised to investors.

The SEC alleges that the offering materials for the promissory notes and the private fund contained material misrepresentations and omissions. They misrepresented to investors that prior to any settlement purchase, Banyon 1030-32 would obtain certain documentation about the settlements to ensure the safety of the investments. Levin and Preve, however, knew or were reckless in not knowing that Banyon 1030-32 often purchased settlements from Rothstein without obtaining any documentation whatsoever.

Furthermore, the SEC alleges that Banyon Income Fund's private placement memorandum misrepresented that the fund would be a continuation of a successful business strategy pursued by Banyon 1030-32 during the prior two-and-a-half years. Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the prior settlements Levin and his entities had purchased. They also failed to inform investors that Levin's ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

The SEC's complaint seeks disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by senior counsels D. Corey Lawson and Steven J. Meiner and staff accountant Tonya T. Tullis under the supervision of Assistant Regional Director Chad Alan Earnst. Senior trial counsels James M. Carlson and C. Ian Anderson are leading the litigation.

The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of Florida, the Federal Bureau of Investigation, and the Internal Revenue Service.

SEC FILES INJUNCTIVE ACTION AGAINST INDIVIDUALS AND COMPANIES

In the following case the SEC alleges a fraudulent offering of promissory notes. The case below is an excerpt from the SEC web site:
“On April 8, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Central District of California against Luis Garg, Jason Zakocs, and four companies owned and/or controlled by Garg, RealFund Investment Trust ("RealFund"), First Atlanta, LP ("First Atlanta"), Weatherby LP ("Weatherby"), and Citiprop Corporation ("Citiprop"), for allegedly participating in fraudulent offerings of promissory notes. RealFund and Citiprop are based in, and Garg and Zakocs reside in, Los Angeles, California. First Atlanta and Weatherby are based in Atlanta, Georgia.

The Complaint alleges that, from at least April 2008 through January 2010, the defendants raised approximately $1 million from 20 to 30 investors who invested in high-yield promissory notes, issued by RealFund, First Atlanta, and Weatherby, the proceeds from which were to be used for real estate development projects. According to the Complaint, the defendants told investors that their investments were risk-free and guaranteed annual returns ranging from 8% to 24%. In addition to alleging that these representations were false, the Complaint alleges that the defendants falsely advised investors that their promissory notes would be fully secured by equity in the underlying real estate projects. The Complaint further alleges that, notwithstanding the defendants' assurances as to the safety of their investment program and unbeknownst to investors, one of the note issuers and real estate development companies for the investment program, First Atlanta, had been involved in bankruptcy proceedings for nearly the entire offering period. In addition, the Complaint alleges that, notwithstanding First Atlanta's default on some of the promissory notes beginning in September 2009, the defendants failed to disclose this information to new investors and continued to offer and sell their promissory notes as a safe and guaranteed investment through January 2010. According to the Complaint, the note offerings were not registered with the Commission, RealFund was not registered with the Commission as a broker or dealer, and neither Garg nor Zakocs were associated persons of a registered broker or dealer at the time they sold the promissory notes.
The Complaint claims that, based on this conduct, all of the defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also claims that RealFund, Garg, and Zakocs violated Section 15(a) of the Exchange Act.”