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| | SEC Complaint against Resource Development International
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
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SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
vs.
RESOURCE DEVELOPMENT INTERNATIONAL,
LLC, DAVID EDWARDS, JAMES EDWARDS, JADE
ASSET MANAGEMENT, LTD, SOUND FINANCIAL
SERVICES, INC, INTERCOASTAL GROUP, LLC,
INTERCOASTAL GROUP II, LLC, KEVIN LYNDS,
GERALD J. STOCK, BLACKWOLF HOLDINGS,
LLC and WILLIAM WHELAN
Defendants,
and
PACIFIC INTERNATIONAL LIMITED
PARTNERSHIP, INTERNATIONAL EDUCATION
RESEARCH CORPORATION, GALAXY ASSET
a. MANAGEMENT, INC and DAVID CLUFF,
b. Individually and d/b/a RIVERA TRUST 410
Defendant Solely for Purposes
of Equitable Relief.
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Plaintiff Securities and Exchange Commission alleges as follows:
SUMMARY
1. This matter involves securities fraud and registration violations resulting
from a "prime bank" fraud that has raised nearly $100 million from investors.
The fraudulent scheme was developed chiefly by defendants James Edwards ("J.
Edwards") and David Edwards ("D. Edwards"), father and son, respectively, and
operated through defendants Resource Development International, LLC ("RDI"),
Jade Asset Management, Ltd ("Jade"), and Sound Financial Services, Inc. ("SFSI"),
all entities controlled by the Edwards. Defendants Gerald Jay Stock ("Stock"),
Kevin Lynds ("Lynds"), Intercoastal Group, LLC ("Intercoastal I"), Intercoastal
Group II, LLC ("Intercoastal II"), Blackwolf Holdings, LLC ("Blackwolf") and
William Whelan ("Whelan") each played a significant role in marketing the prime
bank program on behalf of the Edwards. (Unless otherwise noted, the "prime bank"
program will be referred to throughout this Complaint as the "RDI" program).
2. The RDI program has its genesis in the Dennel Finance Limited ("Dennel")
"prime bank" scheme. The Dennel program, which was the subject of a previous
emergency action by the Commission, was adjudged by the Court to be a prime bank
fraud operating as a Ponzi scheme. [Securities and Exchange Commission v.
Benjamin Franklin Cook, et al., 3:99CV0571-X, USDC, ND/TX (Dallas Division)]
("SEC v. Cook"). When the Commission shut down the Dennel program in 1999, the
Edwards developed the RDI scheme to replace it.
3. From January 1999 through the present, the RDI scheme has raised
approximately $98 million from more than 1300 investors nationwide. In
soliciting funds for the RDI prime bank scheme, defendants have targeted persons
seeking to invest retirement funds.
4. In the course of offering and selling the unregistered prime bank securities,
defendants have engaged in numerous misrepresentations and omissions of material
fact concerning, among other things, the use and safety of investor funds.
Defendants represent, for example, that investor funds will be used in Europe to
trade financial instruments with "top 25" or "top 50" banks in a program
sponsored by the Federal Reserve and global organizations. This trading
activity, investors have been told, will provide them with annual returns of 48
to 120 percent with complete safety of principal. In reality, the prime bank
program marketed to investors does not exist and investor funds have been
misappropriated for personal and unauthorized uses, including making Ponzi
payments. Moreover, while RDI has ceased making payments of any kind to its
investors, tens of millions of dollars collected by the defendants simply cannot
be unaccounted for.
5. In the course of marketing the RDI trading program, defendants D. Edwards, J.
Edwards, Stock, Lynds and Whelan have acted as broker-dealers even though they
were not registered with the Commission as broker-dealers.
6. Relief defendants Pacific International Limited Partnership ("PILP"),
International Education Research Corporation ("IERC"), Galaxy Asset Management,
Inc. ("Galaxy"), and David Cluff, individually and d/b/a Rivera Trust 410 ("Cluff")
have received RDI investor funds or control property derived from investor
funds.
7. By engaging in such conduct, as described in this Complaint, defendant D.
Edwards, J. Edwards, RDI, SFSI, Intercoastal I, Intercoastal II, Lynds, Stock,
Blackwolf and Whelan, directly or indirectly, singly or in concert, have
engaged, and unless enjoin and restrained, will again engage in transactions
acts, practices, and courses of business that constitute violations of Sections
5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C.
§§ 77e(a), 77e(c) and 77q(a)], and Section 10(b) of the Securities Exchange Act
of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. §
240.10b-5] promulgated thereunder.
8. By engaging in such conduct, as described in this Complaint, defendants D.
Edwards, J. Edwards, Lynds, Stock, and Whelan, directly or indirectly, singly or
in concert, have engaged, and unless enjoin and restrained, will again engage in
transactions acts, practices, and courses of business that constitute violations
of 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)].
JURISDICTION AND VENUE
9. The investments offered and sold by the defendants are "securities" under
Section 2(1) of the Securities Act [15 U.S.C. § 77b] and Section 3(a)(10) of the
Exchange Act [15 U.S.C. § 78c].
10. The Commission brings this action pursuant to the authority conferred upon
it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], and Section
21(d) of the Exchange Act [15 U.S.C. § 78u(d)], to preliminarily and permanently
enjoin defendants D. Edwards, J. Edwards, RDI, SFSI, Intercoastal I,
Intercoastal II, Lynds, Stock, Blackwolf and Whelan from future violations of
the federal securities laws.
11. This Court has jurisdiction over this action, and venue is proper, pursuant
to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)], and Section 27 of
the Exchange Act [15 U.S.C. § 78aa].
12. Defendants, directly or indirectly, made use of the means or instruments of
transportation and communication, and the means or instrumentalities of
interstate commerce, or of the mails, in connection with the transactions, acts,
practices and courses of business alleged herein. Certain of the transactions,
acts, practices and courses of business alleged herein took place in the
Northern District of Texas.
DEFENDANTS
13. Resource Development International, LLC, with its principal place of
business in Tacoma, was incorporated in the state of Nevada as a limited
liability company on January 7, 1999. RDI is owned and controlled by James and
David Edwards. Although the LLC dissolved in August 2000, RDI has continued to
function as an assumed name for the Edwards.
14. David E. Edwards, age 44, is a resident of University Place, Washington. D.
Edwards acts as President of RDI, signing investor contracts and checks, and
generating most investor correspondence. In connection with the SEC v. Cook
case, D. Edwards asserted his Fifth Amendment privilege when questioned about
his role in the RDI investment and his control over RDI, SFSI, and Jade.
15. James E. Edwards, age 70, is a resident of Tacoma, Washington. The father of
D. Edwards, J. Edwards owns and/or controls, together with his son, RDI, SFSI,
Jade, and IERC. J. Edwards has worked out of the Tacoma RDI offices, responding
to investor questions about the investment and the delay in payments, and
generally engaging in lulling activities.
16. Jade Asset Management, Ltd. is an entity incorporated in Nevis, West Indies,
and is controlled by J. Edwards and D. Edwards. The Edwards created jade in
early 1999 for the purpose of opening offshore accounts to receive Dennel funds.
During the RDI scheme, Jade has entered into "prime bank" contracts directly
with some investors. In addition, at least $46 million in investor funds were
deposited in the Jade accounts in Nevis.
17. Sound Financial Services, Inc ("SFSI"), an entity incorporated in the state
of Nevada on December 30, 1998, is another entity owned and controlled by the
Edwards. Although SFSI's corporate status was dissolved in July 2000, it
continued to function thereafter as an assumed name for the Edwards.
18. Gerald J. Stock, a Wisconsin resident, is a principal fund-raiser and
"facilitator" for RDI. Stock had been a licensed representative through with
A.G. Edwards for many years. Stock left his employment with A.G. Edwards (File
No. 8-13580) in July 1999, and then was licensed for approximately one month by
Cambridge Investments, Inc. (File No. 8-48740) and has not since been formally
associated with any broker-dealer.
19. Kevin Lynds, a resident of Wichita Falls, Texas, acted as Stock's partner in
raising funds for RDI. From July 20, 1992 through September 3, 1996, Lynds was
licensed as a registered broker associated with A.G. Edwards. Subsequently,
Lynds was licensed through Donnelly & Co., Inc. (File No. 8-47222) from
September 15, 1996 until July 1, 1999. Since that time, he has not been
affiliated with a registered broker-dealer.
20. Intercoastal Group, LLC, a Nevada limited liability corporation, was formed
by Stock and Lynds in October 1999, in connection with their prime bank program
activities. The general manager of the Intercoastal I was Blackwolf and Stock
and Lynds were managing members.
21. Intercoastal Group II, LLC was originally incorporated by Stock and Lynds as
a Delaware limited liability corporation in January 2000, and subsequently in
Nevada in January 2001. Again, the general manager of Intercoastal II was
Blackwolf and Stock and Lynds were its managing members.
22. Blackwolf Holdings, LLC was formed in Nevada in October 1999 by Lynds and
Stock, who are both managing partners. Blackwolf used the same registered agent
in Nevada as did RDI and the other Edwards-related entities. Blackwolf served as
the managing member of the Intercoastal entities and was entitled to management
fee for its "services."
23. William Whelan, a resident of Visalia, California, is a licensed insurance
agent and a principal fund-raiser and "facilitator" for David Edwards and RDI.
On December 22, 1999, the California Department of Corporations issued a Desist
and Refrain order to Whelan for selling unregistered securities, and doing so
without being registered as a broker-dealer. Despite this order, Whelan is
continuing to promote and sell the unregistered securities for David Edwards.
RELIEF DEFENDANTS
24. Pacific International Limited Partnership was a Nevada limited partnership
formed on January 12, 1998. SFSI is listed as the general partner of PILP. PILP
aggregated millions of dollars of investor funds and placed them with Dennel,
receiving in return hundreds of thousand of dollars in commissions each month.
After the Commission ended the Dennel fraud, PILP received large amounts of
money from RDI.
25. International Education Research Corporation was incorporated in Nevada in
May 1998 and remains in good standing. Corporate records designate D. Edwards as
the President, Secretary and Treasurer of IERC. IERC, which shares the same
address as RDI, was used by the Edwards to divert investor funds for personal
and business expenses.
26. Galaxy Asset Management, Inc., an entity which lists its address as a P.O.
Box in the Grand Cayman Islands, British West Indies, is another entity used by
the Edwards to conceal their diversion of investor funds from the RDI program.
27. David Cluff ("Cluff"), a resident of Phoenix, AZ, was a Dennel investor and
cousin of one of the defendants in the SEC v. Cook matter. Jade transferred RDI
funds to an account established by Cluff in the name of Rivera Bench Trust 410.
STATEMENT OF FACTS AND ALLEGATIONS RELEVANT TO ALL CAUSES OF ACTION
The Role of the Edwards and PILP in the Dennel Fraud
28. PILP, acting through J. Edwards and D. Edwards, was among the most prolific
brokers in the fraudulent Dennel scheme. Using contracts and correspondence
nearly identical to those used by Dennel itself, PILP entered into agreements
with investors, pooled their money and invested the pooled funds in the Dennel
program.
29. PILP paid its investors with funds provided by Dennel. While PILP received a
"return"-in reality, a Ponzi payment-of 6 to 7 percent per month from Dennel, it
generally paid PILP investors a return of only 2 percent per month. Accordingly,
the Edwards and PILP reaped a net commission of 4 to 5 percent per month on the
funds it collected for Dennel.
30. The Commission's emergency action in SEC v. Cook shut off the flow of funds
that the Edwards and PILP depended on to repay PILP investors. At the time that
the Commission halted the Dennel fraud, PILP owed its investors more than $7
million.
Fraudulent Offer and Sale of the RDI Prime Bank Program
31. In early 1999, the Edwards created the structure for a nationwide prime bank
fraud to replace the Dennel scheme. The Edwards created two domestic entities,
RDI and SFSI, as chief components of the program. In addition, the Edwards
established Jade, an offshore entity incorporated in Nevis, and opened an
offshore account in the name of Jade at the International Bank of Nevis.
32. RDI employed a large number of sales people or "facilitators" throughout the
United States to market the RDI prime bank program. When the Dennel program was
shut down, many former Dennel facilitators, including defendant Whelan, simply
"changed brands" and began to offer and sell the RDI program. The Commission is
informed and believes that RDI paid its facilitators commissions of at least 4
percent per month of the total principal they collected from investors.
33. RDI and its facilitators targeted the elderly and person seeking to invest
retirement funds ("IRA"). RDI facilitated the investment of IRA funds in the
fraudulent prime bank scheme by entering into an agreement with a company that
acted as the custodian for self-directed IRAs. Thereafter, RDI supplied
investors with documents to effectuate the placement or transfer of their IRA
savings into the RDI program.
34. Most RDI investors completed a Private Placement Application and entered
into written agreements with RDI and SFSI, both signed by David Edwards as Vice
President of SFSI, the managing member of RDI. Investors received a 12-month
note also signed by David Edwards. Some investors, however, entered into similar
agreements directly with Jade.
35. The Private Placement Application states that the investor's funds will be
used in an "international private placement investment." The Joint Venture
Agreement states that the parties agree "to abide by the customary International
Rules of Non-Circumvention and Non-Disclosure as are established by the
International Chamber of Commerce" and further states that the investor further
agrees to "maintain complete confidentiality" concerning RDI's affiliates,
clients, sources, contacts and agreements. The "Consulting" agreement with SFSI
also stresses confidentiality, including extensive language in which investors
acknowledge the confidentiality of all information provided by the company.
Specifically, investors promise "that under no circumstances will they divulge
any information pertaining to investment opportunities brought to their
attention by the company." RDI also required investors to sign a pledge that
their "funds originate from sources of good, clean and clear United States
Dollars and are of non-criminal origin."
36. RDI and the Edwards supplied false information directly to RDI investors and
to RDI facilitators, which they, in turn, disseminated to investors and
potential investors. Investors were supplied with false and misleading
information concerning, among other things, the use of their funds, the risk
pertaining to the investment and the returns to be expected from the program.
37. RDI investors were promised that they would earn enormous returns at no risk
to their investment principal. RDI contracts promised investors annual returns
of 48 percent per year to 120 percent per year. Investors were told that their
funds were pooled with those of other investors and used by a trader to conduct
numerous trades with top 25 or top 50 European banks in financial instruments
such as standby letters of credit, treasuries, prime bank guarantees, and
medium-term notes. Investor principal, according to the Edwards and other RDI
representatives, was deposited in a foreign bank account and remained secure
because it only had to be "scanned" to facilitate its use by the trader.
38. Investors were further told that the RDI program was conducted with the
knowledge and sponsorship of the Federal Reserve and international
organizations, including the International Monetary Fund and United Nations.
Indeed, the purpose of these high-yield programs, according to the Edwards and
RDI facilitators, was to provide funds to support humanitarian and
infrastructure projects abroad; a substantial portion of the "returns" from
trading activity were allocated to this altruistic purpose.
39. All of the essential representations made to investors about the RDI program
were false. In fact, the program described to investors does not exist. Indeed,
the description provided to investors is the prototypical language used to
solicit funds for non-existent prime bank frauds. Moreover, as set forth more
fully below, investor funds were not used to trade financial instruments with
European banks. Rather, investor funds have been misappropriated and dispensed
for personal and unauthorized business uses. Funds collected from RDI investors
have been used to pay the Edwards' debt to PILP investors and funds represented
to RDI investors as "returns" from the promised trading program were, in fact,
Ponzi payments in that later investors' funds are being used to pay a return to
earlier investors in the RDI scheme.
40. The scope of the RDI fraud has become enormous. From January 1999 through
the present, the RDI program has raised in excess of $98 million from a minimum
of 1366 investors in at least 34 different states.
41. RDI made sporadic "interest" payments to its investors until approximately
October 2000. Investors received account statements accompanied by a letter and
a check, both signed by D. Edwards. In October 2000, RDI announced that it was
unilaterally reducing investor returns for a period of 90 days. Thereafter, RDI
continued to pay investors principally at the reduced rate until February 2001.
Investors have received no further payments from RDI. As set forth in detail
below, however, investors have continued through the present to receive
communications from the Edwards and other defendants containing an array of
fraudulent excuses for the delays and promising the imminent payment of both
principal and profits.
Role of Other Defendants in the Offer and Sale of RDI Investments
I. Stock, Lynds, Blackwolf, and Intercoastal I and II
42. Stock, working out of Manitowoc, Wisconsin, and Lynds, working out of
Wichita Falls, Texas, forged a multi-state partnership, under the name of
Blackwolf, with the objective of marketing fraudulent high yield investments,
including the RDI program. Stock and Lynds, both former registered
representatives at A.G. Edwards, established and controlled defendants
Intercoastal I and Intercoastal II to facilitate their fraudulent conduct and
designated Blackwolf as managing member of the Intercoastal entities.
43. Stock and Lynds raised in excess of $2 million from investors and placed it
with the Edwards. Stock and Lynds, through Blackwolf, participated in the RDI
scheme through two separate procedures. First, these defendants induced
investors to enter directly into investment contracts with RDI. In addition,
these defendants induced multiple investors to enter into investment contracts
with the Intercoastal entities. The evidence demonstrates, however, that
Intercoastal investor funds were aggregated and placed with the Edwards.
44. In promoting both the Intercoastal and RDI programs, Stock and Lynds
utilized the classic "prime bank" jargon. They described the investments as
involving highly secretive and confidential programs in which a highly selective
group of "intermediary traders" bought and sold "medium term notes" through "top
world banks," primarily in Europe. Investors were told that these programs were
established and monitored by the Federal Reserve and involved the World Bank and
International Monetary Fund. Stock promised investors in Intercoastal that their
investment principal would always be secure because it would merely sit in an
account under Stock's control and be used only as collateral. Investors were
further told that, after the trader was compensated, 50 percent of the remaining
profit was reserved for "humanitarian" causes. Investors were told that they
could expect returns in excess of 10 percent per month from the Intercoastal
programs and 4 percent per month from their direct investments in RDI.
45. Clients who invested with Stock and Lynds had conservative investment
objective which they communicated to the defendants. In reliance on the promises
made by Stock and Lynds that their principal was guaranteed to be safe and
accessible and the representations that they would be receiving monthly returns,
these investors transferred their money, including retirement funds, from safe
and stable investments into the fraudulent Intercoastal and RDI programs.
46. As with RDI, Intercoastal investors received sporadic payments, often in
amounts less than promised, until January or February 2001. Since that time,
investors have not received profit payments or return of principal.
William Whelan
47. Whelan, a licensed insurance agent in Visalia, California, received more
than $100,000 as a facilitator for the Dennel program. Eventually, Whelan
transferred his sales efforts to the RDI program. By his own admission, Whelan
is an "agent" of the Edwards responsible for selling the RDI program to 20-25
investors and placing a total of $1.2 million with the fraudulent scheme.
48. Whelan admits that he became aware in March 1999 that the Commission had
shut down the Dennel program. Moreover, in December of 1999, the California
Department of Corporations issued a Desist and Refrain Order to Whelan, ordering
him to stop selling unregistered securities as an unlicensed broker-dealer.
Nonetheless, Whelan agreed to sell the unregistered RDI investments, in spite of
their similarity to the Dennel fraud, and has continued serving the Edwards
through at least the latter part of 2001.
49. In his deposition in the SEC v. Cook, conducted on August 22, 2000, Whelan
blatantly lied to the Commission and Receiver concerning his knowledge and
involvement in RDI program. Even though he had been selling the RDI investment
since at least November 1999, Whelan denied that he had any knowledge of David
Edwards, Jim Edwards, Resource Development International or Jade Asset
Management. Additionally, Whelan denied that, apart from Dennel, he had ever
been involved in, or received a commission for offering or selling, any other
similar high-yield program. Further, Whelan denied having ever seen the very RDI
offering documents that he was already using in his offer and sale of the RDI
program.
50. Whelan's services to the Edwards and RDI have continued up to the present
time. He has been an essential part of the Edwards' lulling activities and their
efforts to maintain the allegiance of investors.
Use and Misuse of Investor Funds
51. Funds collected on behalf of RDI were not used to conduct European trading
programs, as represented by RDI and its affiliates. Rather, investor funds have
been used to make Ponzi payments and have been transferred to other
Edwards-controlled entities and associates for the personal benefit of the
Edwards and others.
52. After collecting funds from investors, RDI transferred most investor funds
to a Jade account at the International Bank of Nevis. Funds were then
repatriated as needed to pay investor returns and for other purposes.
53. The Commission is informed and believes that RDI investor funds were used to
retire the $7 million debt PILP owed to its investors at the time the Commission
turned off the Dennel spigot. RDI transferred at least $810,000 to PILP and also
made payments directly to PILP investors.
54. The Jade account was used to make unauthorized transfers to other accounts
maintained or used by the Edwards. Jade transferred at least $3,565,919 to
defendant SFSI. During the period from January 1999 through June 2000 alone,
relief defendant IERC, another Edwards-controlled entity, received nearly
$900,000 from the Jade account.
55. The Commission is informed and believes that RDI investor funds were used by
D. Edwards to purchase unimproved real estate and by J. Edwards to purchase his
present residence. Jade transferred $349,973 to relief defendant Galaxy. In
turn, Galaxy transferred $350,000 to American Title Company to purchase
approximately 50 acres of unimproved real estate on behalf of D. Edwards and his
spouse, who then purportedly provided Galaxy with a Deed of Trust on the
property. A similarly concocted transaction was apparently used to purchase the
Tacoma residence of James Edwards and his spouse. That residence is also
purportedly encumbered by a Deed of Trust from Galaxy at an address of a P.O.
Box in the Grand Cayman Islands, British West Indies.
56. Relief defendant Cluff established a bank account in the name of Rivera
Bench Trust 410. Subsequently, Jade transferred $499,973.20 into the Rivera
account. The Commission is informed and believes that this transfer and the
transfer to IERC were made, in part, to pay legal bills of Ben Cook in
connection with the SEC v. Cook matter.
Lulling Activities and Other Recent Events
Excuses and Assurances
57. From Spring 2001 until the present, defendants have continued to defraud RDI
investors with a series of false excuses for their failure to make payments to
investors, while disingenuously reporting on a regular basis that payments of
principal and profits are "just around the corner." RDI and its representatives
have continually told investors that returns from the RDI program, wired from
Europe, are in a bank in the United States, but are "frozen" as a result of
actions of the by the bank and various agencies of the federal government,
particularly the Federal Reserve. After September 11, 2002, defendants
shamelessly and falsely blamed further delays on the terrorist tragedy in New
York City and new anti-terrorist regulations purportedly promulgated as a
result.
58. Nonetheless, defendants' communications also continually lull investors with
the expectation that payments are imminent. Investors are constantly given hope
that the release of frozen funds will be achieved shortly or that payments will
be forthcoming from alternative programs.
New Programs and Continued Sales Efforts
59. In addition to evidence of continuing lulling activities, defendants are
continuing to operate the fraudulent RDI program and other programs. Beginning
in August 2001, RDI provided its investors with revised contracts and requested
that they execute and return the new agreements. These contracts continue to
offer RDI investors returns of "a maximum of 4% [per month], but on a best
efforts basis."
60. Defendants have admitted that they are attempting to pay RDI investors from
the proceeds of similar ongoing programs. Still more significantly, in recent
communications with investors, defendants have stated their intent to begin
soliciting additional funds from RDI's existing client base.
CAUSES OF ACTION
FIRST CLAIM AS TO ALL DEFENDANTS
Violation of Section 10(b) of the Exchange Act and Rule 10-5
61. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this
Complaint and incorporated herein by reference as if set forth verbatim.
62. Defendants, directly or indirectly, singly or in concert with others, in
connection with the purchase and sale of securities, by use of the means and
instrumentalities of interstate commerce and by use of the mails have: (a)
employed devices, schemes and artifices to defraud; (b) made untrue statements
of material facts and omitted to state material facts necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading; and (c) engaged in acts, practices and courses of business which
operate as a fraud and deceit upon purchasers, prospective purchasers and other
persons.
63. As a part of and in furtherance of their scheme, defendants, directly and
indirectly, prepared, disseminated or used contracts, written offering
documents, promotional materials, investor and other correspondence, and oral
presentations, which contained untrue statements of material facts and
misrepresentations of material facts, and which omitted to state material facts
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading, including, but not limited to, those
set forth in Paragraphs 1 through 59 above.
64. Defendants made the above-referenced misrepresentations and omissions
knowingly or grossly recklessly disregarding the truth.
65. By reason of the foregoing, defendants have violated and, unless enjoined,
will continue to violate the provisions of Section 10(b) of the Exchange Act [15
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
SECOND CLAIM AS TO ALL DEFENDANTS
Violations of Section 17(a) of the Securities Act
66. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this
Complaint and incorporated herein by reference as if set forth verbatim.
67. Defendants, directly or indirectly, singly, in concert with others, in the
offer and sale of securities, by use of the means and instruments of
transportation and communication in interstate commerce and by use of the mails,
have: (a) employed devices, schemes or artifices to defraud; (b) obtained money
or property by means of untrue statements of material fact or omissions to state
material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and (c) engaged in
transactions, practices or courses of business which operate or would operate as
a fraud or deceit.
68. As part of and in furtherance of this scheme, defendants, directly and
indirectly, prepared, disseminated or used contracts, written offering
documents, promotional materials, investor and other correspondence, and oral
presentations, which contained untrue statements of material fact and which
omitted to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading,
including, but not limited to, those statements and omissions set forth in
paragraph 1 through 59 above.
69. Defendants made the above-referenced misrepresentations and omissions
knowingly or grossly recklessly disregarding the truth.
70. By reason of the foregoing, defendants have violated, and unless enjoined,
will continue to violate Sections 17(a) of the Securities Act [15 U.S.C.
77q(a)].
THIRD CLAIM AS TO ALL DEFENDANTS
Violations of Section 5(a) and 5(c) of the Securities Act
71. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this
Complaint and incorporated herein by reference as if set forth verbatim.
72. Defendants, directly or indirectly, singly and in concert with others, have
been offering to sell, selling and delivering after sale, certain securities,
and have been, directly and indirectly: (a) making use of the means and
instruments of transportation and communication in interstate commerce and of
the mails to sell securities, through the use of written contracts, offering
documents and otherwise; (b) carrying and causing to be carried through the
mails and in interstate commerce by the means and instruments of transportation,
such securities for the purpose of sale and for delivery after sale; and (c)
making use of the means or instruments of transportation and communication in
interstate commerce and of the mails to offer to sell such securities.
73. As describe in paragraphs 1 through 59, the purported RDI prime bank trading
program was offered and sold to the public through a general solicitation of
investors. No registration statements have been filed with the Commission or are
otherwise in effect with respect to these securities.
74. By reason of the foregoing, defendants have violated and, unless enjoined,
will continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C.
77e(a) and 77e(c)].
FOURTH CLAIM AS TO D. EDWARDS, J. EDWARDS, STOCK, LYNDS AND WHELAN
Violations Of Section 15(a)(1) Of The Exchange Act
75. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this
Complaint and incorporated herein by reference as if set forth verbatim.
76. At the times alleged in this Complaint, defendants have been in the business
of effecting transactions in securities for the accounts of others.
77. Defendants made use of the mails and of the means and instrumentalities of
interstate commerce to effect transactions in and to induce or attempt to induce
the purchase of securities.
78. At the times alleged in this Complaint, none of the defendants were
registered with the Commission as a broker or dealer, as required by section
15(b) of the Exchange Act [15 U.S.C. §78o(b)].
79. By reason of the foregoing, defendants have violated and, unless enjoined,
will continue to violate section 15(a)(1) of the Exchange Act [15 U.S.C.
§78o(a)(1)].
FIFTH CLAIM
Claim Against the Relief Defendants As Custodians of Investor Funds
80. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this
Complaint and incorporated herein by reference as if set forth verbatim.
81. As set forth in paragraphs 50 through 55 of this Complaint, relief
defendants have received funds and property from one or more of the defendants,
which are the proceeds, or are traceable to the proceeds, of the unlawful
activities of defendants, as alleged in paragraphs 1 through 79, above.
82. Relief Defendants have obtained the funds and property alleged above as part
of and in furtherance of the securities violations alleged in paragraphs 1
through 79 and under the circumstances in which it is not just, equitable or
conscionable for them to retain the funds and property. As a consequence, relief
defendants have been unjustly enriched.
RELIEF REQUEST
WHEREFORE, Plaintiff respectfully requests that this Court:
I.
Temporarily, preliminarily and permanently enjoin defendants from violating
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.
II.
Temporarily, preliminarily and permanently enjoin defendants D. Edwards, J.
Edwards, Stock, Lynds, and Whelan from violating Section 15(a)(1) of the
Exchange Act.
III.
Enter
an Order instanter freezing the assets of defendants and directing that all
financial or depository institutions comply with the Court's Order. Furthermore,
order instanter that defendants repatriate any funds held at any bank or other
financial institution not subject to the jurisdiction of the Court, and that
they direct the deposit of such funds in identified accounts in the United
States, pending conclusion of this matter.
IV.
Enter
an Order instanter freezing the assets of relief defendants, which they
received, directly or indirectly, from the activities described in the
Commission's Complaint. Furthermore, order instanter that these relief
defendants repatriate any funds which they received, directly or indirectly,
from the activities described in the Commission's Complaint held at any bank or
other financial institution not subject to the jurisdiction of the Court, and
that they direct the deposit of such funds in identified accounts in the United
States, pending conclusion of this matter.
V.
Order
instanter that defendants and relief defendants shall file with the Court and
serve upon Plaintiff Commission and the Court, within 10 days of the issuance of
this order or three days prior to a hearing on the Commission's motion for a
preliminary injunction, whichever comes first, an accounting, under oath,
detailing all of their assets and all funds or other assets received from
investors and from one another.
VI.
Order
instanter that defendants and relief defendants be restrained and enjoined from
destroying, removing, mutilating, altering, concealing or disposing of, in any
manner, any of their books and records or documents relating to the matters set
forth in the Complaint, or the books and records and such documents of any
entities under their control, until further order of the Court.
VII.
Order
instanter the appointment of a receiver pendente lite for defendants and relief
defendants, for the benefit of investors, to marshal, conserve, protect and hold
funds and assets obtained by the defendants and their agents, co-conspirators
and others involved in this scheme, wherever such assets may be found, or, with
the approval of the Court, dispose of any wasting asset in accordance with the
application and proposed order provided herewith.
VIII.
Order
that the parties may commence discovery immediately, and that notice periods be
shortened to permit the parties to require production of documents, or the
deposition of any party or party-representative, on 72 hours notice.
IX.
Order
the defendants to disgorge an amount equal to the funds and benefits they
obtained illegally as a result of the violations alleged herein, plus
prejudgment interest on that amount, and order the relief defendants to disgorge
an amount equal to the illegally obtained investors funds they received from the
Defendants, plus prejudgment interest on that amount.
X.
Order
civil penalties against the Defendants pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)], and Section 21(d) of the Exchange Act [15
U.S.C. § 78u(d)], for the violations alleged herein.
XI.
Order
instanter that defendants surrender their passports to the Clerk of this Court,
to hold until further order of this Court.
XII.
Order
such further relief as this Court may deem just and proper.
For the Commission, by its attorneys:
Respectfully submitted,
DATED: March 25, 2002
________________________
JEFFREY B. NORRIS
Attorney-in-Charge for Plaintiff
Washington, D.C. Bar No. 424258
U.S. Securities and Exchange Commission
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, TX 76102-6882
(817) 978-6452
(817) 978-4927 (fax)
Of Counsel:
Spencer Barasch
Victoria Prescott
Julia Watson
http://www.sec.gov/litigation/complaints/complr17438.htm
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