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SEC Injunction Issues for Investment Contract Scheme
Promises of 15% Returns in Government and Distressed Securities Alleged to be Fraudulent
The Securities and Exchange Commission announced that on July 28, 2000, the Honorable Kenneth L. Ryskamp, United States District Judge for the Southern District of Florida, entered a summary judgment against a group of defendants permanently enjoining them from violating the registration and anti-fraud provisions of the federal securities laws, namely Sections 5(a), 5(c) and 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.
The judgment also orders defendants to disgorge, jointly and severally, $17 million in ill-gotten gains and to pay civil penalties.
In the underlying complaint, the SEC alleged that the the defendants made material misrepresentations and omissions in connection with the sale of at least $17 million in investment contracts to the investing public. The contracts promised investors returns of between 9.25% to 15% annually, depending upon the amount invested. The complaint further alleges that Chemical represented to investors that their funds would be used to purchase U.S. Treasury notes and distressed properties and that the investment was 100% guaranteed through a security bond issued by U.S. Guarantee.
According to the SEC’s complaint, Chemical has not purchased any U.S. treasury notes or distressed properties, and investor funds are not secured as promised. Instead, the complaint alleges that the defendants misappropriated millions of dollars in investor monies and expatriated them to offshore bank accounts. The complaint alleges that in a classic Ponzi scheme fashion, Chemical used new investor funds to pay interest to existing investors. The complaint further alleges that the defendants made material misrepresentations and omissions to investors concerning, among other things, the assets of U.S. Guarantee and the background of its principals.
SEC V. CHEMICAL TRUST, ET. AL., Case No. 00-8015-CIV-RYSKAMP (S.D. Fla.)
Copyright 2002, Mark J. Astarita. All Rights Reserved .Mark J. Astarita, Esq. is a partner in the law firm of Beam & Astarita, LLC, and represents financial professionals in a wide variety of matters. He is also the sponsor of The Securities Law Home Page and can be reached at (212) 509-6544 or by e-mail at firstname.lastname@example.org.
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
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