SEC FILES CHARGES OF INVESTMENT FRAUD AGAINST FIVE FORMER EXECUTIVES OF CAY CLUBS RESORTS AND MARINIAS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Five Former Executives of Cay Clubs Resorts and Marinas in $300 Million Real Estate Investment Fraud

The Securities and Exchange Commission filed a civil fraud action in the United States District Court for the Southern District of Florida against five former executives of the defunct Florida-based companies known collectively as Cay Clubs Resorts and Marinas, for conducting an offering fraud and Ponzi scheme that raised more than $300 million from nearly 1,400 investors nationwide.

According to the SEC's complaint, from late 2004 through 2008, former Cay Clubs CEO and President Fred Davis Clark, Jr., former manager and sales agent Cristal R. Coleman, former Chief Accounting Officer David W. Schwarz and former Sales Directors Barry J. Graham and Ricky Lynn Stokes, conducted a multi-year scheme to defraud investors who purchased units at Cay Clubs' resort locations in Florida and Las Vegas, Nevada. Clark, Coleman, Graham and Stokes solicited investors directly and through a network of hundreds of sales agents touting the profitability of Cay Clubs' investments by promising investors immediate income from a guaranteed 15% return; instant equity in undervalued properties; historic appreciation; development of a network of luxury destination resorts at its nationwide locations; at least $30,000 of unit upgrades; and, a future income stream through the rental program Cay Clubs managed.

The SEC alleges that Cay Clubs, through Clark and Schwarz, used a web of entities and bank accounts to conceal a Ponzi scheme that commingled investors' funds and used new investor deposits to pay leaseback returns to earlier investors. Clark and the other executives paid themselves exorbitant salaries and commissions in excess of $30 million and failed to fulfill their promises. Additionally, Clark and Coleman misappropriated millions of dollars of investor funds to purchase airplanes, boats, and to pay for unrelated business ventures that included investments in precious metals and a liquor distillery that produced Pirate's Choice Rum.

The SEC further alleges that Cay Clubs' representations about investors' profitability and "instant equity" were false because the purported triple-digit returns were the result of undisclosed insider transactions among Cay Clubs and Coleman, Graham, and Stokes to make it appear that the units had enormous rates of appreciation over a short period of time when in fact the transactions were part of an insider flipping scheme. Cay Clubs continued to solicit new investors despite the fact that the company's financial condition had deteriorated so significantly that it did not have sufficient funds to make "guaranteed" leaseback or rental payments to investors. Clark and Coleman left the United States and now reside in the Cayman Islands.

The SEC's complaint alleges that Clark, Coleman, Graham, and Stokes violated Sections 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. Additionally, the SEC's complaint alleges that Graham and Stokes violated Section 15(a)(1) of the Exchange Act, and that Schwarz violated Section 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) and Rule 10b-5(a) and (c) of the Exchange Act. The SEC complaint seeks from all defendants disgorgement of ill-gotten gains plus prejudgment interest, injunctive relief to enjoin them from future violations of the federal securities laws, an accounting, civil money penalties from Clark, Coleman and Stokes, and an order to repatriate assets.

SEC CHARGED IT SPECIALISTS WITH INSIDER TRADING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission charged two information technology specialists at a Bend, Oregon-based health insurance company with insider trading on confidential information about the acquisition of their employer.

The SEC alleges that Daniel Vance of Bend and Blake Wellington of Hillsboro, Oregon, learned that their employer Clear One Health Plans was involved in advanced merger negotiations with competitor PacificSource Health Plans. Rather than keep the information confidential, Wellington and Vance improperly used the information to personally profit by purchasing Clear One shares. Clear One's share price jumped by more than 150 percent after the companies announced the merger on Dec. 30, 2009.

According to the SEC's complaint filed in federal court in Oregon, Daniel Vance gained access to the confidential deal information on Dec. 16, 2009, when he was asked by Clear One's CEO to help resolve an e-mail issue. Vance saw confidential merger documents being sent to the CEO of PacificSource. Vance then informed Blake Wellington, who was his supervisor. The very next day, Wellington purchased 3,700 Clear One shares and Vance purchased 1,200 Clear One shares. Clear One's share price jumped by more than 150 percent after the companies announced the merger on Dec. 30, 2009. Wellington and Vance immediately began selling their stock, reaping more than $70,000 in profits.

The SEC alleges that Wellington and Vance took unusual steps to finance their purchases of Clear One shares. For instance, Wellington obtained a $25,000 loan from an online peer lending site. Vance borrowed $5,285 from his 401(k) retirement account, sold personal computer equipment, and sold his truck to finance his purchases of Clear One shares.

The complaint alleges that, by their conduct, Wellington and Vance violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the SEC's allegations, both Wellington and Vance consented to permanent injunctions against violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Wellington consented to pay full disgorgement of his trading profits totaling $55,891.50 plus prejudgment interest of $5,644.04 and a penalty of $55,891.50, and Vance consented to pay full disgorgement of his trading profits totaling 17,509.75 plus prejudgment interest of $1,768.18 and a penalty of $17,509.75.

The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.

CentreInvest, Inc., et al.

CentreInvest, Inc., et al.

COURT ORDERS $22.8 MILLION IN SANCTIONS AND RESTITTION IN INVESTMENT FRAUD CASE

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Florida Imposes over $22.8 Million in a Monetary Sanction and Restitution against Floridian David Merrick and His Company, Trader’s International Return Network

In a parallel criminal action, Merrick was convicted on fraud charges and sentenced to 97 months imprisonment

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Charlene Edwards Honeywell of the U.S. District Court for the Middle District of Florida entered an order requiring defendants David Merrick, previously of Apopka, Fla., and his company, Trader’s International Return Network (TIRN), to jointly pay a civil monetary penalty of over $11.4 million for fraud in connection with a foreign currency trading program that victimized more than 700 customers. The order also requires TIRN, a Panamanian corporation, to pay restitution of $11,437,573 to defrauded customers.

The CFTC order, entered on January 22, 2013, stems from a complaint filed by the CFTC in 2009, charging the defendants with solicitation fraud and misappropriation of customer funds involving at least $22.5 million. The complaint alleged that the defendants provided customers and prospective customers with written and/or electronic documents that contained materially false and misleading statements and omissions regarding the actual investment of customer funds, the risks of trading, and profits achieved (see CFTC Press Release 5733-09, October 15, 2009).

The court previously entered consent orders of permanent injunction against Merrick on April 22, 2010 and TIRN on September 8, 2010, finding that they violated the anti-fraud provisions of the Commodity Exchange Act, as charged. Both orders reserved the issue of monetary sanctions for future order.

In a related criminal case, United States v. David Merrick, No. 10-cr-00109-MSS-DAB (M.D. Fla.), on January 19, 2012, Merrick was found guilty of one count of conspiracy to commit wire fraud, money laundering, and securities fraud and one count of money laundering. He was sentenced to 97 months imprisonment and ordered to pay $11,437,573.15 in restitution to 735 customer-victims.

The CFTC thanks the U.S. Attorney’s Office for the Middle District of Florida, the Federal Bureau of Investigation, and the Securities and Exchange Commission for their assistance in this matter.

CFTC staff members are responsible for the action are William P. Janulis, Barry R. Blankfield, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.

SEC SUES TO HALT HOUSTON-AREA INVESTMENT SCHEME TARGETING LEBANESE AND DRUZE COMMUNITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged a day trader in Sugar Land, Texas, with defrauding investors in his supposed high-frequency trading program and providing them falsified brokerage records that drastically overstated assets and hid his massive trading losses.

The SEC alleges that Firas Hamdan particularly targeted fellow members of the Houston-area Lebanese and Druze communities, raising more than $6 million over a five-year period from at least 33 investors. Hamdan told prospective investors that he would pool their investments with his own money and conduct high-frequency trading using a supposed proprietary trading algorithm. Hamdan promised annual returns of 30 percent and assured investors that his program was safe and proven when in reality it was a dismal failure, generating $1.5 million in losses. As he failed to deliver the promised profits, Hamdan told investors that his funds were tied up in the Greek debt crisis and the MF Global bankruptcy among other phony excuses.

According to the SEC's complaint filed in federal court in Houston, Hamdan is well-known in the Lebanese and Druze communities in the Houston area and is a former treasurer of the Houston branch of the American Druze Society. Hamdan found investors for his trading program by talking with his friends and family in these communities. As word spread about his purported trading success, he asked existing investors to solicit their friends for investments.

The SEC alleges that Hamdan misrepresented to investors that he generated positive returns in 59 of 60 months between 2007 and 2012. He showed them phony documentation to support his false claims. For instance, a purported brokerage statement he provided investors for the first quarter of 2010 showed an opening balance of more than $2.3 million with quarterly trading gains of $2.7 million for a closing balance above $5.1 million. An actual brokerage statement obtained by SEC investigators for Hamdan's account during that same period shows the opening balance at just $27,970.76 and the closing balance at $148,210.02, with quarterly trading losses of $7,452.80.

According to the SEC's complaint, Hamdan made several other false claims to potential investors. For instance, he lied about the existence of a cash reserve account that secured their investments. Hamdan falsely stated that investments were further secured by a $5 million "key-man" insurance policy. He also falsely claimed that a well-known hedge-fund manager in the Dallas area had made a million-dollar investment with him and promised to invest more based on Hamdan's continuing success.

The SEC's complaint charges Hamdan with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking various relief including a temporary restraining order, preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

HUSBAND AND WIFE ACCUSED OF DEFRAUDING SENIOR CITIZENS BY SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Feb. 4, 2013 — The Securities and Exchange Commission today charged a husband and wife who raised millions of dollars selling investments for a purported charitable organization in Tallahassee, Fla., while defrauding senior citizens and significantly exaggerating the amount of contributions actually made to charity.

The SEC alleges that after Richard K. Olive and Susan L. Olive were hired at We The People Inc., the organization obtained $75 million from more than 400 investors in Florida, Colorado, and Texas among more than 30 states across the country by selling an investment product they described as a charitable gift annuity (CGA). However, the CGAs issued by We The People differed in several ways from CGAs issued legitimately, namely that they were issued primarily to benefit the Olives and other third-party promoters and consultants. Only a small amount of the money raised was actually directed to charitable services. Meanwhile the Olives received more than $1.1 million in salary and commissions, and they also siphoned away investor funds for their personal use.

The SEC further alleges that the Olives lured elderly investors with limited investing experience into the scheme by making a number of false representations about the purported value and financial benefits of We The People’s CGAs. The Olives also lied about the safety and security of the investments.

"The Olives raised millions from senior citizens by claiming that We The People’s so-called CGAs provided attractive financial benefits and were re-insured and backed by assets held in trust," said Julie Lutz, Associate Director of the SEC’s Denver Regional Office. "Investors were not given the full story about the true value and security of their investments."

According to the SEC’s complaint against the Olives filed in U.S. District Court for the Southern District of Florida, investors were coaxed to transfer assets including stocks, annuities, real estate, and cash to We The People in exchange for a CGA. We The People claimed to operate as a non-profit organization while it was offering the CGAs from June 2008 to April 2012. However, We The People was not operating as a charity but instead for the primary purpose of issuing CGAs and using the proceeds to pay substantial sums to the Olives, third-party promoters, and consultants. On rare occasions when We The People did actually direct money raised toward charitable services, it was insignificant. For instance, the organization made public statements that it donated $21.8 million in relief aid to AIDS orphans in Zambia, but in fact the supplies were donated by others and We The People merely made a small payment to the third party that was shipping the supplies.

The SEC alleges that We The People’s marketing and promotional materials for the CGA offering contained misrepresentations and omissions including:
False statements that the CGAs were worth the "full" accumulated value of the assets transferred by investors to We The People. Investors were not told in advance of transferring their assets that the value of the CGA as calculated by We The People was always substantially less than the "full" accumulated value of those assets because We The People took a significant percentage of the asset’s value and kept it as a purported "charitable gift."

False statements about the safety and security of the CGA program including that We The People held in trust a reserve equal to 110 percent of its liabilities and that it "reinsured" its products through "highly rated" commercial insurance companies. We The People did not in fact have any restricted-access trust accounts let alone maintain a reserve in them, and it did not purchase reinsurance from any insurance company to cover its potential liabilities under the CGAs.
Omissions of the previous indictments and regulatory sanctions against Richard and Susan Olive when they previously sold similar products.
Omissions of the sizable commissions that We The People paid to third-party promoters and the Olives on the sale of the CGAs, hiding from investors that these commissions totaled several million dollars.
The SEC’s complaint charges the Olives with violations, or aiding and abetting violations, of the antifraud provisions of the federal securities laws as well as violations of the securities and broker-dealer registration provisions of the federal securities laws. The SEC is seeking disgorgement of ill-gotten gains plus pre- and post-judgment interest and financial penalties against the Olives.

The SEC also filed separate complaints today against We The People as well as the company’s in-house counsel William G. Reeves. They both agreed to settle the charges without admitting or denying the allegations. The settlements are subject to court approval.

We The People consented to a final judgment that will enable the appointment of a receiver to protect more than $60 million of investor assets still held by the company. The final judgment also provides for disgorgement of ill-gotten gains and provides injunctive relief under the antifraud and registration provisions of the federal securities laws.

Reeves entered into a cooperation agreement with the SEC, and the terms of his settlement reflect his assistance in the SEC’s investigation and anticipated cooperation in its pending action against the Olives. Reeves agreed to be suspended from appearing or practicing before the SEC for at least five years, and consented to a final judgment providing injunctive relief under the provisions of the federal securities laws that he violated. The court will determine at a later date whether a financial penalty should be imposed against Reeves.

The SEC’s investigation was conducted by Michael Cates and Ian Karpel in the Denver Regional Office. The SEC’s litigation against the Olives will be led by Nicholas Heinke and Dugan Bliss.