COURT ENTERS DEFAULT JUDGEMENT AGAINST PSYCHIC AND HIS COMPANIES

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22619 / February 15, 2013
District Court Grants Securities and Exchange Commission's Motions for Default Judgment against a Nationally Known Psychic and his Corporate Entities in Multi-Million Dollar Offering Fraud


The Securities and Exchange Commission (Commission) announced today that on February 11, 2013 the U.S. District Court for the Southern District of New York entered default judgments against Sean David Morton (Morton), a nationally-recognized psychic who bills himself as "America's Prophet," his wife, relief defendant Melissa Morton, and corporate shell entities co-owned by the Mortons. In addition to ordering permanent injunctions from violating antifraud and registration statutes and rule, each defendant was ordered to disgorge, jointly and severally, $5,181,135.82, along with prejudgment interest of $1,171,110.54, and pay a penalty of $5,181,135.82 for a total of $11,533,382.18. Relief defendants Melissa Morton and the Prophecy Research Institute, the Mortons' nonprofit religious organization, were ordered to disgorge $468,281 plus prejudgment interest of $105,847.23, for a total of $574,128.23.

On March 4, 2010, the Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Morton and his corporate shell entities for engaging in a multi-million offering fraud. According to the Commission's complaint, Morton fraudulently raised more than $5 million from more than 100 investors for his investment group, which he called the Delphi Associates Investment Group (Delphi Investment Group).

Beginning in or around the summer of 2006, the complaint alleged, Morton solicited individuals to invest in one of several companies he and Melissa Morton controlled under the umbrella of the Delphi Investment Group. According to the Commission's complaint, Morton used his monthly newsletter, his website, his appearances on a nationally syndicated radio show called Coast to Coast AM, and appearances at public events, to promote his alleged psychic expertise in predicting the securities markets, and to solicit investors for the Delphi Investment Group. During these solicitations, Morton made numerous materially false representations. For example, Morton falsely told potential investors that he has called all the highs and lows of the stock market, on their exact dates, over a fourteen year period. Morton further falsely asserted that the alleged profits in the accounts were audited and certified by PricewaterhouseCoopers LLP (PWC) who he claimed certified that the accounts had profited by 117%. Morton also falsely asserted that the investor funds would be used exclusively for foreign currency investments, and that any other use of the funds would be considered a criminal act. Morton further falsely claimed that he would use the pooled funds to trade in foreign currencies and distribute pro rata the trading profits among the investors. In private one-on-one correspondence with potential investors, Morton was even more aggressive in his solicitation. For example, Morton wrote to a potential investor urging he invest more money in the Delphi Investment Group "RIGHT NOW…[Because] [o]nce the DOLLAR starts to DROP, which will happen soon, we are set to make a FORTUNE!"

However, the complaint alleged, Morton lied to investors about his past successes, and about key aspects of the Delphi Investment Group, including the use of investor funds and the liquidity of the funds. According to the complaint, Morton did not have the successful track record picking stocks in which he claimed, and that he in fact was simply wrong in many of his securities predictions. Further, PWC never audited the Delphi Investment Group, let alone certify any profits. Also, unbeknownst to the investors, instead of investing all of the funds into foreign currency trading firms, the Mortons diverted some of the investor funds, including nearly half a million dollars to themselves through their own shell entities.

The defendants never properly answered the allegations in the complaint. Instead, the Mortons filed dozens of papers with the Court claiming, for instance, that the Commission is a private entity that has no jurisdiction over them, and that the staff attorneys working on the case do not exist.

On February 11, 2013, United States District Judge Forrest issued default judgments against all of the defendants and relief defendants. With the entry of the default judgments, the Commission received full relief requested in its complaint. The complaint charged each of the defendants with violations of 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 and Rule 10b-5 thereunder. The complaint further charged that the relief defendants were unjustly enriched by receiving investor funds. The complaint sought a final judgment permanently restraining and enjoining the defendants from future violations of the above provisions of the federal securities laws.

The SEC's litigation team was led by Bennett Ellenbogen, Alexander Vasilescu, Todd Brody, Elzbieta Wraga, and Roshonda Ledbetter. Amelia Cottrell, Stephen Johnson, Jacqueline Fine, and Elizabeth Baier assisted during the investigation.

THREE CHARGED WITH FRAUD IN ALLEGED CHARITABLE GIFT ANNUITY SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges We The People, Inc., of The United States and Three Individuals In Offering Fraud Scheme

On February 4, 2013, the Securities and Exchange Commission filed complaints in the U.S. District Court for the Southern District of Florida in connection with an offering fraud conducted by We The People, Inc. of the United States ("We The People"), a purported charitable organization based in Tallahassee, Florida.

In its complaint against Richard Olive, We The People’s former chief of program services, and Susan Olive, We The People’s former chief of finance and administration, the Commission alleges that the Olives, husband and wife, orchestrated a fraudulent scheme that raised more than $75 million from approximately 450 investors located across the United States, most of whom were senior citizens. Investors were solicited to transfer assets to We The People in exchange for what it called a charitable gift annuity. The Commission alleges that We The People – through the Olives – lured investors by making various false and misleading statements regarding, among other things, the value of the products sold and the safety and security of the investments. The complaint also alleges that the Olives failed to disclose to investors indictments and regulatory sanctions issued against them for fraudulently selling similar products. In addition to the misrepresentations, the Commission alleges that the Olives misappropriated investor funds for personal use.

The complaint alleges that, based on this conduct, Richard and Susan Olive violated, or aided and abetted the violation of, Sections 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 complaint also claims that the Olives violated Sections 5(a) and 5(c) of the Securities Act, and Section 15(a) of the Exchange Act. The Commission seeks that the Olives be permanently enjoined, and be ordered to pay disgorgement plus pre- and post-judgment interest, and third-tier civil money penalties.

In addition, the Commission filed settled actions against We The People and William Reeves, We The People’s in-house counsel. Without admitting or denying the Commission’s allegations, We The People consented to a final judgment providing injunctive relief under Sections 5(a), 5(c) and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, disgorgement, and the appointment of a receiver to protect the more than $60 million of investor assets still held by We The People.

Without admitting or denying the Commission’s allegations, Reeves consented to a final judgment providing injunctive relief under Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act, and providing that the Court will determine issues relating to the imposition of a civil money penalty against him at a later date. Reeves also agreed to a suspension from appearing or practicing before the Commission as an attorney, with the right to apply for reinstatement after 5 years. Reeves entered into a cooperation agreement with the Commission, and the terms of his settlement reflect his assistance in the Commission’s investigation and anticipated cooperation in its pending enforcement action.

FINAL JUDGMENT ENTERED AGAINST DEFENDANT IN RHODE ISLAND-BASED OFFERING FRAUD

Credit:  Wikimedia..

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today the resolution of an enforcement action filed by the Commission on October 19, 2010 in federal district court in Rhode Island against defendants David G. Stern and Online-Registries, Inc. (d/b/a Online Medical Registries) ("OMR") and relief defendant Michele Ritter. The court entered final judgment by consent against Stern on December 5, 2012 and entered a stipulation of dismissal of the claims against the relief defendant on December 27, 2012. The court previously had entered a final judgment by default against OMR on September 25, 2012.

The Commission's complaint alleged that Stern and OMR made false and misleading statements to investors in OMR, a web-based company founded and controlled by Stern, in connection with investors' purchase of stock in OMR. The misrepresentations generally related to OMR's business ventures, the status of its technology, its number of customers, and Stern's personal background, consisting of disbarment from the practice of law and a prior criminal conviction in federal district court in Massachusetts relating to financial wrongdoing. Based upon these and other allegations, including the misuse of investor funds, the Commission obtained a temporary restraining order and asset freeze on October 20, 2010, and a stipulated preliminary injunction on February 28, 2011 against Stern and OMR. On April 3, 2012, the court held Stern in contempt for violations of the preliminary injunction.

Without admitting or denying the allegations in the Commission's complaint, Stern agreed to the entry of a final judgment that: (i) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder; (ii) holds him liable for disgorgement of $197,875, representing amounts received as a result of the conduct alleged in the Commission's complaint, together with prejudgment interest thereon in the amount of $27,800.71, for a total of $225,675.71; and (iii) waives the payment of disgorgement and prejudgment interest and does not impose a civil penalty based upon the representations in Stern's sworn statement of financial condition. The final judgment by default entered against OMR (i) enjoins OMR from violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and (ii) orders OMR to pay disgorgement of $197,875 and prejudgment interest in the amount of $24,997.22. The Commission had initially charged that relief defendant Michele Ritter received some investor funds from Stern and sought the return of those funds. The Commission has now agreed to dismiss its charges against relief defendant Michele Ritter.

SEC ACCUSES MAN OF RUNNING ILLEGITIMATE CREDIT UNION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Purported Credit Union and Its Principal with Offering Fraud
On Nov. 8, 2012, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Colorado against Stanley B. McDuffie, a resident of Denver, Colorado, and his entity, Jilapuhn, Inc., d/b/a Her Majesty's Credit Union (HMCU), in connection with a fraudulent and unregistered offering through which McDuffie and HMCU sold more than $532,000 in alleged certificates of deposits (CDs) to investors.

In its complaint, the Commission alleges that from 2008 to 2012, McDuffie and HMCU lured investors to purchase the CDs through the HMCU website and a branch office in the U.S. Virgin Islands. McDuffie and HMCU held out HMCU as a secure, legitimate, regulated credit union, promised to pay above-market interest rates, and assured investors that their deposits were insured by Lloyd's of London or the U.S. Virgin Islands' government. In reality, HMCU was an unregulated, illegitimate credit union that never held share insurance covering investor deposits, and McDuffie and HMCU misappropriated investors' funds.

The Commission alleges that McDuffie and HMCU 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, and, alternatively, that pursuant to Section 20(a) of the Exchange Act, McDuffie is liable as a control person for HMCU's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

The Commission appreciates the assistance of the Colorado Department of Regulatory Agencies, Division of Securities, in this matter.

ALLEGED PONZI SCHEME TARGETED SENIORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Brings Charges in $42 Million Offering Fraud Targeting Seniors

The Securities and Exchange Commission today announced charges against Bradley A. Holcom, of Welches, Oregon, and Jose L. Pinedo, of San Diego, California, in connection with a fraudulent scheme that sold $42 million of promissory notes to more than 150 investors located across the United States, many of whom are senior citizens.

According to the complaint against Holcom, he lured investors by offering them guaranteed monthly interest payments on purportedly safe deals. He promised that their funds would be used to finance the development of specific pieces of real estate, and that each investment would be fully secured. In reality, the investments were unsecured, and the same piece of underlying property was often pledged as purported collateral on numerous investors’ promissory notes.

In addition to his misrepresentations, the complaint alleges that Holcom was also running a classic Ponzi scheme. While Holcom used some of the investors’ money to develop real estate, he also relied on those funds to make interest and principal payments on promissory notes as they came due. Holcom also used investor funds for personal use and on unrelated business ventures. By 2008, as the real estate market declined, Holcom’s scheme collapsed. Investors lost principal in excess of $25 million.

The Commission also alleges that Pinedo, who served as Holcom’s bookkeeper and as an officer or manager of Holcom’s numerous corporate entities, routinely signed promissory notes and other false and misleading documents that were sent to investors.

The Commission alleges that Holcom violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission is seeking a permanent injunction, disgorgement plus pre- and post-judgment interest, and civil penalties against Holcom. Without admitting or denying the allegations in the Commission’s complaint against him, Pinedo has agreed to settle the matter, and consented to a final judgment enjoining him from violations of Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act.

SEC CHARGES ATTORNEY IN MBC'S $1 BILLION DOLLAR OFFERING FRAUD

FROM:  U.S SECURITIES AND EXCHANGE COMMISSION  
April 30, 2012
The Securities and Exchange Commission announced today that it filed a complaint against Defendant Michael J. McNerney, charging him with violations of the federal securities laws arising from his involvement in Mutual Benefits Corp.’s (“MBC”) offering fraud which raised more than $1 billion from approximately 29,000 investors. From 1995 through at least May 2004, McNerney served as primary securities regulatory counsel for MBC. The complaint alleges thatin this role, he helped conceal the fraud, met with investors, and supervised the filing of false reports with state regulators. The Commission’s complaint charges McNerney with aiding and abetting MBC’s violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The Commission seeks permanent injunctive relief against McNerney, who has consented to the entry of Final Judgment providing for full injunctive relief.

In addition to the civil action against McNerney, the Commission simultaneously issued an Order pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice forthwith suspending McNerney from appearing or practicing before the Commission based on the entries of a felony conviction against him. On August 26, 2011, the Honorable Adalberto Jordan, United States District Judge for the Southern District of Florida, sentenced McNerney to 5 years in prison, followed by three years of supervised release, and ordered him to pay restitution, along with his co-conspirators, in the amount of $826,839,642.

On May 3, 2004, the Commission first halted the on-going fraud at MBC when it filed a contested emergency civil enforcement action against MBC and its principals. In its complaint, the Commission alleged that the defendants raised over $1 billion from thousands of investors through a fraudulent, unregistered offering of securities in the form of fractionalized interests in viatical and life settlements. The Commission obtained a restraining order to halt the alleged fraud at MBC, and thereafter the United States District Court for the Southern District of Florida appointed a receiver to identify and trace the assets of MBC.

The Commission’s actions regarding MBC have resulted in nine injunctions and other relief against nine defendants and eight relief defendants, and orders to pay disgorgement and civil penalties totaling $30 million. In addition, the United States Attorney’s Office for the Southern District of Florida has charged 12 defendants in criminal actions for their roles in the fraud.

The SEC acknowledges the work of the United States Attorney’s Office for the Southern District of Florida, the Federal Bureau of Investigation, Miami Field Office, and the Internal Revenue Service, Criminal Investigation Division in this matter.