On September 5, 2007, the United States Securities & Exchange Commission issued a Press Release (No. 2007-172) entitled "SEC Charges 26 Defendants in $428 Million Securities Fraud That Targeted Senior Citizens and Retirement Savings", about actionable conduct "that victimized thousands of seniors and other investors throughout the United States."
The Securities and Exchange Commission today filed charges stemming from a $428 million securities fraud that victimized thousands of seniors and other investors throughout the United States.Further details about the case are set forth in the Press Release.
The SEC's action, filed in federal district court in Chicago, Ill., charges 26 defendants and alleges that they participated in a massive fraud that involved the sale of securities in the form of "Universal Leases."
The investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The fraudulent Universal Lease scheme eventually collapsed, leaving investors with losses that exceed $300 million. * * *
The reach & level of the alleged fraud is frightening, particularly when the targeted individuals are considered: seniors who "invested" their retirement funds.
Under these circumstances, the response of the SEC is gratifying.
The case is part of the Commission's crackdown on financial fraud against senior citizens, which has already resulted in more than 40 enforcement actions over the past two years. * * *This prosecution could be labeled as Exhibit "A" in an argument to prove the SEC's point: "There is no "Free Lunch".
"This case illustrates the Commission's continuing commitment to hold accountable those who prey upon the retirement funds of older Americans," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Kelly and his cohorts told investors they were purchasing a safe, high-income investment suitable for a retirement account. In reality, investor funds were at grave risk as investor funds were used in a way that guaranteed the collapse of the scheme."
Merri Jo Gillette, Regional Director of the SEC's Chicago Regional Office, added, "Kelly and those involved in his operation may have hoped to evade U.S. law enforcement by operating the Universal Lease scheme from abroad. The action we filed today shows that the SEC will vigilantly pursue those who target older Americans, no matter what the obstacles. The SEC plans to aggressively seek recovery from the defendants to offset the huge losses they inflicted on investors." * * *
The SEC has made the point before. See: EE&F Law Blog posting "SEC's Senior Investor Protection Seminar on May 18" (05/07/07).
This point was repeated, explicitly, and was substantiated by a new investigative report, during an SEC public educational event -- the second annual "Seniors Summit" -- held earlier this week, on Monday, September 10, 2007.
Combating financial fraud against older investors [was] a focus of the Commission's second annual Seniors Summit in Washington, D.C., on Sept. 10. The Summit also [included] the release of findings from regulatory examinations of 110 firms offering "free lunch" investment seminars aimed at seniors.
The SEC's Seniors Summit [began] at 10 a.m. ET on Sept. 10 and [was] webcast live on the SEC Web site at www.sec.gov. The event [further examined] how regulators, community organizations, and others can increasingly coordinate efforts to educate older Americans and protect them from abusive sales practices and investment fraud.
[I]nformation and other materials about the Seniors Summit are available at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm.
On that webpage, the SEC provided links for its Media Kit for SEC 2007 Seniors Summit and also a List of Outside Participants.
Along with materials from the first annual Senior Summit (see: Archive: 2006 Seniors Summit), the materials from this recent second annual Senior Summit are now available online from the SEC:
- Protecting Senior Investors: Report of Examinations of Securities Firms Providing "Free Lunch" Sales Seminars (09/10/07, PDF, 46 pages, which is also available in a full-color brochure)
- Seniors — Beware of Investment Seminars (No Free Lunches) (webpage)
- Most Common Older Investor Scams (PDF, 12 pages)
- Oldest Baby Boomers Turning 60! (webpage)