Tuesday, April 3, 2012
SEC OBTAINS SUMMARY JUDGEMENT AGAINST PONZI MASTERMIND
The following excerpt is from the SEC website:
March 27, 2012
SEC Obtains Summary Judgment against Serial Fraudster Matthew J. Gagnon
The Securities and Exchange Commission announced today that on March 22, 2012, the Honorable George Caram Steeh of the United States District Court for the Eastern District of Michigan granted the SEC’s motion for summary judgment and entered a final judgment against defendant Matthew J. Gagnon of Portland, Oregon and Weslaco, Texas. The Court found that Gagnon violated the registration, anti-fraud, and anti-touting provisions of the federal securities laws by promoting and operating a series of securities offerings through his website, www.Mazu.com, and ordered Gagnon to pay $4.1 million in disgorgement with prejudgment interest and a $100,000 civil penalty.
The SEC filed this action against Gagnon on May 11, 2010, alleging that since 1997, Gagnon had billed himself as an Internet business opportunity expert and his website as “the world’s first and largest opportunity review website.” According to the SEC’s complaint, from January 2006 through approximately August 2007, Gagnon helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight and his company, Legisi Holdings, LLC, which raised a total of approximately $72.6 million from over 3,000 investors by promising returns of upwards of 15% a month. The complaint also alleged that Gagnon promoted Legisi but in doing so misled investors by claiming, among other things, that he had thoroughly researched McKnight and Legisi and had determined Legisi to be a legitimate and safe investment. The complaint alleged that Gagnon had no basis for the claims he made about McKnight and Legisi. Gagnon also failed to disclose to investors that he was to receive 50% of Legisi's purported "profits" under his agreement with McKnight. According to the complaint, Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.
The SEC's complaint further alleged that beginning in August 2007, Gagnon fraudulently offered and sold securities representing interests in a new company that purportedly was to develop resort properties. The complaint alleged that Gagnon, among other things, falsely claimed that the investment was risk-free and "SEC compliant," and guaranteed a 200% return in 14 months. In reality, however, Gagnon sent the money to a twice-convicted felon, did not register the investment with the SEC, and knew such an outlandish return was impossible. Gagnon took in at least $361,865 from 21 investors.
The SEC's complaint also alleged that in April 2009, Gagnon began promoting a fraudulent offering of interests in a purported Forex trading venture. Gagnon guaranteed that the venture would generate returns of 2% a month or 30% a year for his investors. Gagnon's claims were false, and he had had no basis for making them because Gagnon never reviewed his friend’s trading records before promoting the offering, which would have shown over $150,000 in losses over the previous nine months.
The SEC's complaint charged Gagnon with violating Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief already obtained, the complaint sought preliminary and permanent injunctions, disgorgement, and civil penalties from Gagnon. On May 24, 2010, the SEC obtained an emergency order freezing Gagnon’s assets and other preliminary relief. Subsequently, on August 6, 2010, the Court granted an order of preliminary injunction against Gagnon pursuant to his consent.
In granting the Commission’s motion and entering final judgment, the Court found that Gagnon “purposefully built up an image of trustworthiness in the on-line investing community and exploited this trust.” The Court also found that Gagnon “repeatedly committed egregious violations of the federal securities laws” and “has shown no remorse for his conduct.”
The Court’s final judgment against Gagnon permanently enjoins him from future violations of Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and orders Gagnon to pay $3,613,259 in disgorgement, $488,570.47 in prejudgment interest, and a $100,000 civil penalty.