IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SECURITIES AND EXCHANGE COMMISSION,
NETWORK INTERNATIONAL INVESTMENT CORPORATION,
ABRAHAM L. KENNARD and
CHURCH KINGDOM INVESTMENTS, LTD.,
R. SCOTT CUNNINGHAM,
R. SCOTT CUNNINGHAM, P.C.,
CARL GRIGSBY and
GRIGSBY & GRIGSBY, LLC,
Plaintiff Securities and Exchange Commission ("Commission") alleges as follows:
- This matter involves an ongoing nationwide fraud primarily targeting African-American churches. From at least January 2001 through the present, defendant Network International Investment Corporation ("NIIC"), its president, defendant Abraham L. Kennard, of Wildwood, Georgia, and an affiliated corporation, defendant Church Kingdom Investments, Ltd. ("Church Kingdom"), have engaged in a deliberate scheme to defraud investors. The defendants have knowingly made and continue to make false and misleading statements in connection with the offer and sale of unregistered securities, in the form of investment contracts, relating to NIIC's so-called "Church Funding Project."
- NIIC, acting through Kennard, has raised at least $3 million from over 1000 investing churches located throughout the United States. At least 38 of the defrauded churches are located in the Eastern District of Pennsylvania.
- Through various promotional means -- including NIIC's website, Kennard's presentations at group meetings and religious conferences, telephone solicitations and a commissioned sales force -- Kennard solicits churches to become members of NIIC by, among other things, promising huge financial returns. Specifically, for each investment of $3,000, Kennard promises that NIIC will pay a return of $500,000, despite the fact that the defendants have no current means available to pay the promised returns. As a result of this offering, NIIC has outstanding commitments to investors of at least $500 million.
- NIIC and Kennard have made and continue to make numerous false and misleading representations to potential and current investors. Most importantly, Kennard tells investors that NIIC will fund the promised returns on their investment from a pool of money that NIIC receives for this purpose from four sources: profit-making corporations; federal government grants; other Christian institutions; and profits from a series of world-wide Christian-based resorts to be built and run by NIIC's sister corporation, Church Kingdom. In fact, NIIC does not have any commitments from profit-making corporations or other institutions to fund this project, and Church Kingdom has built no resorts.
- As a result of Kennard's fraudulent representations, and in the belief that they would receive large sums of money, many churches have committed to building projects (additions, new buildings, and repairs), undertaken new debt, spent building funds, and contracted with builders. The investing churches (and their parishioners) are the true victims of this fraud.
- Kennard deposited investor funds into the escrow account of an attorney, relief defendant R. Scott Cunningham, whose law firm, relief defendant R. Scott Cunningham, P.C., is located in Dalton, Georgia. According to Cunningham, although earlier this year the escrow account contained as much as
$2 million of investor funds, at present only $160,000 of those funds remain in his account. Kennard claims that these pooled investor funds were used to pay NIIC's expenses in running its various programs, and to develop sources from which NIIC would pay to investors the promised returns.
- In addition, some funds raised by Kennard were wired directly from an investor to a company, relief defendant Grigsby & Grigsby, LLC, which is owned or controlled by relief defendant Carl Grigsby, NIIC's Director of Security Services.
- As a result of the conduct described in this complaint, defendants NIIC, Kennard and Church Kingdom have violated and, unless restrained and enjoined by this Court, will continue to violate Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §77q(a); 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. In addition, defendants NIIC and Kennard have violated and, unless restrained and enjoined by this Court, will continue to violate Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§77e(a) and (c).
- Relief defendants R. Scott Cunningham, R. Scott Cunningham, P.C., Carl Grigsby and Grigsby & Grigsby, LLC were unjustly enriched when they received funds resulting from the unlawful activities described herein. They are not charged with violating any of the provisions of the federal securities laws cited in this complaint.
JURISDICTION AND VENUE
The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act, 15 U.S.C. §78t(b), and Sections 21(d) and (e) of the Exchange Act, 15 U.S.C. §§78u(d) and (e), to enjoin such acts, transactions, practices and courses of business, obtain disgorgement and civil penalties, and for other appropriate relief.
- This Court has jurisdiction over this action 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.
- Certain of the acts, transactions, practices and courses of business constituting the violations alleged herein occurred, and certain of the offers or sales of securities took place, within the Eastern District of Pennsylvania and elsewhere, and were effected, directly or indirectly, by making use of the means and instruments of transportation or communication in interstate commerce, or of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange.
- Network International Investment Corporation was incorporated in Nevada in 1998 and is headquartered in Wildwood, Georgia. NIIC claims to be a $25,000,000 corporation whose stated purpose is to "financially empower God's people." Among other things, NIIC claims that it intends to build Christian resorts, called the Harvest Time Resorts, through its affiliate corporation, Church Kingdom.
- Abraham L. Kennard is a resident of Wildwood, Georgia. He is the president of NIIC and controls its operations. He is also the president of Church Kingdom. Kennard was convicted in 1986 for robbery and fraudulent check writing for which he was sentenced to three years in prison. Kennard claims to have a doctorate of divinity.
- Church Kingdom Investments, Ltd. is a Nevada corporation and is affiliated with NIIC. Kennard is the president of Church Kingdom, whose stated purpose is to build a series of Christian-based resorts, which would generate funds for NIIC's church funding programs.
R. Scott Cunningham is an attorney who operates a general practice law firm, located in Dalton, Georgia, under the name R. Scott Cunningham, P.C.
- Carl Grigsby, a resident of Savannah, Georgia, is the Director of Security Services for NIIC. He owns or controls a company, Grigsby & Grigsby, LLC.
- At all times material hereto, defendants NIIC and Church Kingdom have acted by and through defendant Kennard.
- Since at least January 2001, Kennard, through NIIC, has offered and sold unregistered securities, in the form of investment contracts, primarily to at least 1000 African-American churches nationwide. These securities represent interests in NIIC's Church Funding Project. Kennard has raised at least $3 million from NIIC "members", which are located in at least 41 of the 50 states. Kennard has also raised funds from several non-African-American churches and other non-profit organizations. As a result of this offering, NIIC has outstanding commitments to investors of at least $500 million.
- In their solicitation of investors, defendants Kennard and NIIC have knowingly made and continue to make numerous materially false and misleading statements and omissions regarding the investment program, relating to the guaranteed rate of return, the source of funds to be used to pay promised returns to investors, and the operation of Christian resorts by defendant Church Kingdom. Most importantly, the defendants have misrepresented and continue to misrepresent their ability to pay the promised returns to investors.
- Defendant Church Kingdom is a vehicle for Kennard's fraud and a means through which he has conducted his fraudulent activities.
The Church Funding Project
- Kennard, through NIIC, operates an investment program called the "Church Funding Project," the purpose of which purportedly is "to financially empower God's people for the Kingdom of God." As part of this investment program, which was never registered with the Commission, Kennard promises that for each $3,000 that a church (or other investor) pays to NIIC, NIIC will pay a guaranteed return of $500,000 to the church for various projects, usually the building of or addition to the church. Under this scheme, a $3,000 payment promises to yield a $500,000 return; a $6,000 payment promises to yield $1 million, etc.
- To date, Kennard has deposited the funds received from investors into an escrow account maintained by an attorney, relief defendant R. Scott Cunningham, and his law firm, R. Scott Cunningham, P.C. According to Cunningham, this account currently holds approximately $160,000 of investor funds, but may have held as much as $2 million earlier this year.
- In addition, some funds were wired directly from an investor to a company, Grigsby & Grigsby, LLC, owned or controlled by relief defendant Carl Grigsby, who is NIIC's Director of Security Services.
- NIIC, through Kennard, claims to have cultivated four sources that will provide a pool of funds from which NIIC will pay the guaranteed returns: (i) "profit-making" corporations, which are interested in making charitable donations for tax purposes; (ii) federal government grants, which Kennard refers to on his website as the "free cheese;" (iii) other Christian institutions; and (iv) profits from a series of world-wide Christian-based resorts, called the Harvest Time Resorts. Kennard purportedly plans to build these resorts through Church Kingdom, which Kennard describes as a sister corporation of NIIC.
- Throughout the offering, Kennard has pitched NIIC's investment program in various forms; however, at all times, the program has promised investors a $500,000 payment - on a specified timetable - in return for an initial payment to NIIC of $3,000.
- Initially, Kennard told the churches that the $500,000 would be paid to them in the form of a "forgivable loan." Until sometime in early 2002, Kennard told prospective investors that, under the terms of the forgivable loan, the churches would be required to pay interest only (approximately 9 percent annually) on a loan with a 10 year term; however, after 5 years, he promised that NIIC would forgive the principal amount. In fact, few if any churches actually received any funds from NIIC or Kennard, or made interest payments to NIIC, under what initially purported to be a "forgivable loan."
- In or about February 2002, Kennard changed NIIC's investment program, both retroactively for existing investors and prospectively for new investors. Thereafter, Kennard began to describe the program as one in which NIIC would make payments to churches in the form of a grant, which the church would not be required to repay at all. Despite defendants' new characterization of the transaction as a grant, NIIC and Kennard continued to market the program as a promise to pay $500,000 in return for each $3,000 payment made by the investing churches.
- Kennard and NIIC told investors that the $500,000 return would be paid directly to them.
- In the spring of 2002, however, NIIC and Kennard further modified the program - again, both retroactively and prospectively. Under this most recent modification, investors were required to submit "vouchers" to NIIC in order to trigger NIIC's payment of their guaranteed return.
- To date, few if any investing churches have been paid using the voucher system. In fact, the vouchers appear to be nothing more than defendants' latest ploy to avoid making promised payments to investors - payments that they cannot make.
Marketing of the Church Funding Project
- Kennard and NIIC use several mechanisms to market the Church Funding Project, including a website, group meetings, conferences where Kennard makes presentations, telephone solicitations, mailings and other written materials, and a commissioned sales force made up of current investors.
- Kennard and NIIC have maintained a website, "NIICORPINC.COM," which promotes NIIC's Church Funding Project. The website states, among other things, that NIIC is a company "assisting churches and non-profit organizations in networking with profit making corporations to issue grants" that do not have to be paid back and that "NIIC is networked with profit making corporations that provide grants for our members." The website also contains a list of salespeople that potential investors can contac
- In addition, Kennard has held and continues to hold meetings in Florida, Pennsylvania, Michigan, Oklahoma, Illinois, Virginia, Georgia and other states where he promotes his programs. At these meetings, Kennard leads participants in prayer and worship, and follows with a sales pitch for the Church Funding Project, explaining how this funding program supports religious values.
- Kennard and NIIC also use the pastors and members of churches who have already invested to recruit new churches to invest. In return for their efforts, Kennard has paid these individuals, whom he refers to as "affiliates" or "affiliate brokers," a commission of $500 for each $3,000 paid to NIIC by new investors.
- Finally, throughout the offering, NIIC and Kennard have used the mails to send prospective investing churches applications, correspondence or other documents pertaining to NIIC's programs. NIIC and Kennard have also maintained a toll-free telephone number, where potential investors could call with any questions and receive the names and telephone numbers of affiliates.
- As recently as September 20, 2002, Kennard held a meeting in Virginia attended by over one hundred existing and prospective investors. At that meeting, Kennard falsely stated that the Commission had brought an action against him, which would cause a delay in NIIC's disbursement of promised returns.
Material Misrepresentations and Omissions
- Kennard's offering is fraudulent on its face. Most importantly, Kennard has admitted that NIIC has no identifiable means of paying the $500 million that it has promised to the investing churches. Other than defendant Church Kingdom, which Kennard controls, no "profit-making" companies or other institutions have indicated their willingness to make the charitable donations.
- Kennard claims that Church Kingdom will build and operate the Harvest Time Resorts and that NIIC will use some of the funds raised from investors to help build these resorts.
- Although Kennard claims that Church Kingdom has purchased a tract of land in Tennessee on which to build its first resort, Church Kingdom does not own or operate any resorts that generate profits. In fact, Church Kingdom has not yet built a single resort.
- Finally, the federal government does not have grant funds available to fund the construction of churches.
- Kennard has continually promised to make disbursements which he has failed to make.
- For example, earlier this year, Kennard sent investors a letter on NIIC stationery, dated May 17, 2002, misrepresenting that "there is $346,000,000 more available" in funding for the church projects, and that disbursements under the Church Funding Project would begin in September 2002.
- Contrary to these claims, the defendants did not then have and have not at any time had this amount of money available to fund the Church Funding Project. Few if any investors received disbursements in September 2002, as promised.
- In order to add an air of legitimacy to his fraudulent investment program, Kennard has also told investors that NIIC has an affiliation with Dr. Creflo A. Dollar, a prominent African-American minister who has a nationally known television ministry program, and that Dr. Dollar endorsed NIIC's investment program. This is not true; to the contrary, Dr. Dollar's representatives have twice asked Kennard to cease using his name under threat of legal action.
- Kennard has also failed to disclose to investors that he was previously criminally convicted for robbery and fraudulent check writing.
Use of Proceeds
- Although Kennard claims to have made total payments in excess of $1 million to investors, few if any investors have received any funds from NIIC or Kennard.
Violations of Section 17(a) of the Securities Act,
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder
- Paragraphs 1 through 47 are realleged and incorporated herein by reference.
- From at least January 2001 and continuing through the present, as a result of the conduct alleged herein, defendants NIIC, Kennard and Church Kingdom, knowingly or recklessly, in connection with the offer, purchase or sale of securities, directly and indirectly, by the use of the means or instruments of transportation or communication in interstate commerce, or the means or instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange:
- employed devices, schemes or artifices to defraud;
- obtained money or property by means of, or made, untrue statements of material facts, or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and
- engaged in acts, transactions, practices, or courses of business which operated as a fraud or deceit upon offerees, purchasers and prospective purchasers of securities.
- By reason of the foregoing, defendants NIIC, Kennard and Church Kingdom violated and, unless restrained and enjoined, will continue to violate Section 17(a) of the Securities Act, 15 U.S.C. §77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. §78j(b), and Rule 10b-5, 17 C.F.R. §240.10b-5, thereunder.
Violations of Sections 5(a) and 5(c) of the Securities Act
- Paragraphs 1 through 50 are realleged and incorporated herein by reference.
- From at least January 2001 and continuing through the present, as a result of the conduct alleged herein, defendants NIIC and Kennard offered for sale and sold securities in the form of investment contracts, and made use of the means and instruments of transportation and communication in interstate commerce, and of the mails, to sell and offer to sell such securities. Defendants NIIC and Kennard caused such securities to be carried through the mails and in interstate commerce, by the means and instruments of transportation, for the purpose of sale and delivery after sale.
- With respect to the securities sold by NIIC and Kennard, no registration statements have been filed with the Commission or were in effect at the time of the conduct described herein, and no valid exemption from registration was available.
- By reason of the foregoing, defendants NIIC and Kennard violated and, unless restrained and enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§77e(a) and 77e(c).
Claim against R. Scott Cunningham, R. Scott Cunningham, P.C.,
Carl Grigsby and Grigsby & Grigsby, LLC
- Paragraphs 1 through 54 are realleged and incorporated herein by reference.
- As described above, as a result of the fraudulent conduct alleged herein, relief defendants R. Scott Cunningham, R. Scott Cunningham, P.C., Carl Grigsby and Grigsby & Grigsby, LLC received investor funds. These funds were misappropriated by defendants NIIC, Kennard and Church Kingdom from investors.
- Accounts in the name of R. Scott Cunningham, R. Scott Cunningham, P.C., Carl Grigsby, Grigsby & Grigsby, LLC, and possibly other accounts, have obtained the funds described above, and possibly other funds, as part of and in furtherance of the fraudulent conduct under circumstances in which it is unjust, inequitable or unconscionable for the relief defendants to retain the funds at the expense of defrauded investors.
WHEREFORE, the Commission respectfully requests that this Court:
Issue an injunction permanently restraining and enjoining defendants NIIC, Kennard and Church Kingdom, and their agents, officers, servants, employees, attorneys, and those persons in active concert or participation with them, directly or indirectly, singly or in concert, from violations of Section 17(a) of the Securities Act, 15 U.S.C. §77(q)a, Section 10(b) of the Exchange Act, 15 U.S.C. §§78j(b), and Rule 10b-5, 17 C.F.R. §240.10b-5, thereunder.
Issue an injunction permanently restraining and enjoining defendants NIIC and Kennard, and their agents, officers, servants, employees, attorneys, and those persons in active concert or participation with them, directly or indirectly, singly or in concert, from violations of Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§77e(a) and 77e(c).
Enter an order requiring defendants NIIC, Kennard and Church Kingdom to disgorge any and all ill-gotten gains, together with prejudgment interest, derived from the activities set forth in this complaint, in accordance with a plan of disgorgement acceptable to the Court and to the Commission.
Enter an order requiring defendants NIIC, Kennard and Church Kingdom to pay civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. §78t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C. §78u(d)(3), in an amount to be determined by the Court.
Enter an order requiring relief defendants R. Scott Cunningham, R. Scott Cunningham, P.C., Carl Grigsby and Grigsby & Grigsby, LLC, to disgorge any and all unjust enrichment, together with prejudgment interest, derived from the activities set forth in this complaint, in accordance with a plan of disgorgement acceptable to the Court and to the Commission.
Enter an order granting such other and further relief as the Court may deem just and appropriate.
/ S /
Merri Jo Gillette, PA Bar No. 37075
Kingdon Kase, PA Bar No. 37952
David S. Horowitz, PA Bar No. 19781
Michael B. Novakovic, PA Bar No. 69491
Attorneys for Plaintiff:
SECURITIES AND EXCHANGE COMMISSION
601 Walnut Street, Suite 1120E.
Philadelphia, PA 19106
Dated: November 4, 2002