UNITED STATES OF AMERICA
|In the Matter of
Bobby L. Rodgers,
|ORDER MAKING FINDINGS
AND IMPOSING REMEDIAL
In connection with a public administrative proceeding instituted against him on May 11, 1999, pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Bobby L. Rodgers ("Rodgers," or "Respondent") has submitted an Offer of Settlement ("Offer") to the Securities and Exchange Commission ("Commission"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction, which he admits, Rodgers consents to the entry of the findings and remedial sanctions set forth below.
On the basis of this Order and the Offer submitted by Rodgers, the Commission makes the following findings:
A. At all times relevant, respondent Bobby L. Rodgers, 55, a retired clothing store manager, ran a purported financial consulting business from his home in Germantown, Tennessee. On November 13, 1998, in an enforcement action unrelated to this proceeding, Rodgers consented, without admitting or denying the Commission's allegations, to a final judgment in the United States District Court for the Western District of Tennessee enjoining him from violating the registration and antifraud provisions of the Securities Act and the antifraud provisions of the Securities Exchange Act of 1934. SEC v. Austria Trust Company Ltd., et al., Civ. Action No. 98-2370-GV (W.D. Tenn. Apr. 23, 1998) (JSG); Litigation Release No. 15976 (Nov. 13, 1998).
B. In October 1993, the Commission and other federal agencies jointly issued an investor alert warning of fraudulent offerings of so-called prime bank instruments. This case involves offerings of such bogus instruments through a website on the World Wide Web and arises out of the facts set forth in Securities Act Release No. 33-7705 (July 26, 1999); Securities Act Release No. 33-7706 (July 26, 1999); and Securities Act Release No. 33-7679 (May 11, 1999).
C. From May 1997 through July 1998, Robert J. Stahl ("Stahl") operated a website through which he solicited investments that would purportedly generate incredibly high returns -- up to 200 percent a month -- through the trading on overseas markets of instruments issued by or through "world prime banks." These offerings were fraudulent in all material respects. They came to the attention of the Arizona Corporation Commission (the "ACC"), which undertook to investigate them. Posing as a prospective investor, an ACC investigator expressed interest in the offerings to Stahl. Stahl referred the investigator to an associate, who then put the investigator in touch with Elizabeth A. Boyd ("Boyd") for further information.
D. On June 10, 1998, Boyd offered the investigator the opportunity to participate in a "blocked funds" or "reserved funds" program. This program would require the investor to maintain funds in a specific account for at least 90 days and would allegedly pay to the investor a risk-free 80 percent net return every ten banking days. Boyd had learned of the reserved funds program from David V. Francis, II ("Francis"), to whom Boyd referred the investigator. Francis's information about the reserved funds program came, in turn, from Rodgers, the program's "promoter" or "facilitator," who had previously urged Francis to disseminate information about the reserved funds program to potential investors. Rodgers did not have any direct contact with Stahl or Boyd in these offerings.
E. Between mid-June and early-July 1998, the investigator spoke with Boyd and Francis on several occasions about this reserved funds program. Francis informed the investigator that the investment would be risk-free, and that gross returns of up to 200 percent would be generated every ten banking days on invested funds through the trading of "medium term bank debentures" in London. All descriptions of the reserved funds program, including its structure and rates of return, were based on information and documents provided to Francis by Rodgers, and Rodgers was to receive half of all gross returns generated from the purported trading of the bank instruments. Moreover, with Francis's assistance, Rodgers attempted to obtain a power of attorney from the investigator over the funds he was supposedly going to invest in the reserved funds program.
F. In addition to the foregoing, Rodgers provided Francis with documents describing another purportedly risk-free "106" investment program, secured by a bank guarantee for the investor's principal plus 6 percent interest. Rodgers knew that Francis intended to pass on the information and documents regarding the reserved funds program and the "106" program to investors.
G. The various programs described in the documents provided by Rodgers did not exist, nor were there prime bank guarantees or any markets for the trading of the type of illusory debt instruments that were part of the programs. Rodgers had no access to any investment program such as those offered to the investigator, nor did he have the ability to generate the returns described in the program documents. There was no reasonable basis for the representations made about the programs in those documents, nor did Rodgers make any significant effort to verify any of the information he disseminated about them.
H. Prime bank instruments constitute "investment contracts" and therefore "securities" under the three-part test set out in SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946); SEC v. Lauer, 864 F. Supp. 784, 794 (N.D. Ill. 1994), aff'd, 52 F.3d 667 (7th Cir. 1995). Section 17(a) of the Securities Act prohibits fraud in the offer or sale of securities. A violation of Section 17(a)(1) occurs when a party, acting with scienter, misrepresents or omits material facts in connection with the offer of securities. Scienter is established by showing that the party knew or was reckless in not knowing of the misrepresentations or omissions. Aaron v. SEC, 446 U.S. 690, 695-97 (1980). By engaging in the conduct described above, Rodgers violated and caused violations of Section 17(a)(1) of the Securities Act.
I. Rodgers also violated and caused violations of Section 17(a)(3) of the Securities Act, which prohibits conduct that operates or would operate as a fraud or deceit upon a purchaser of securities. Establishing a violation of Section 17(a)(3) does not require proof of scienter.
Based on the foregoing, the Commission finds that Respondent violated and caused violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act.
Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by the Respondent and to impose the sanctions specified therein.
IT IS HEREBY ORDERED THAT Rodgers cease and desist from committing or causing any violation of Sections 17(a)(1) or 17(a)(3) of the Securities Act.
For the Commission, by its Secretary, pursuant to delegated authority.
Jonathan G. Katz
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