Paul R. Berger
Kathleen A. Ford
Russell G. Ryan
J. Lee Buck, II
Keith A. O'Donnell
Attorneys for Plaintiff
Securities and Exchange Commission
450 Fifth Street, N.W., Mail Stop 9-11
Washington, D.C. 20549-0911
(202) 942-2787 (Ford)

LOCAL COUNSEL
Thomas A. Zaccaro, Cal. Bar No. 183241
Securities and Exchange Commission
5670 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90036-3648
(323) 965-3877; FAX: (323) 965-3908

UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA

Plaintiff Securities and Exchange Commission (the "Commission") alleges for its Complaint that:

JURISDICTION

1. The Commission brings this action pursuant to the authority conferred upon it by Sections 20(b) and (d) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77t(b) and d)] and Sections 21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) and (e)] permanently to restrain and enjoin defendants from engaging in the acts, practices, and transactions herein alleged, and for other relief.
    
2. This Court has jurisdiction over this action pursuant to Sections 20(d)(1) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d)(1) and 77v(a)] and Sections 21(d) and (e) and Section 27 of the Exchange Act [15 U.S.C. §§ 78u(d) and (e) and 78aa].
    
3. The defendants, directly or indirectly, made use of the mails, or the means or instrumentalities of interstate commerce, or the means or instruments of transportation or communication in interstate commerce in connection with the acts, practices, or courses of conduct alleged herein, certain of which occurred in the Central District of California.
    
4. Unless restrained and enjoined by this Court, the defendants will continue to engage in acts, practices, and transactions as set forth herein, and in acts, practices, and transactions of similar purport and object.

SUMMARY

5. This case involves a massive securities fraud orchestrated by William R. Kerr and his company, the China Investment Group, LTD ("CIG"). Kerr induced more than sixty investors throughout the United States, as well as in Canada, to invest over $12 million in his fraudulent investment program that he falsely promised would yield exorbitant returns within a matter of weeks or months. In furtherance of this scheme, Kerr posed as a wealthy, politically connected businessman and made numerous false and materially misleading representations to his investor victims and to various intermediaries whom he knew would echo his false claims to other investor victims. These false and materially misleading representations included claims (i) that Kerr had control of a $200 million trust; (ii) that Kerr could use the trust as leverage to trade in medium term bank notes ("MTNs"); (iii) that this MTN trading would yield profits of more than 13,000% of the amount invested; (iv) that Kerr's company, CIG, conducted the MTN trading; (v) that the World Bank supported Kerr's trading program; and (vi) that Kerr's investment program was safe and was backed by Kerr's personal guarantee. Further, instead of investing his victims' funds as he had represented, Kerr misappropriated it, and failed to return either profits or principal to his investor victims.
    
6. By engaging in this conduct, Kerr and CIG violated the antifraud provisions of both the Securities Act and the Exchange Act, as well as the registration provisions of the Securities Act and the broker-dealer registration provisions of the Exchange Act. Unless enjoined by this Court, Kerr and CIG will likely continue to engage in such violations.

THE DEFENDANTS

7. William R. Kerr, 46, a former stockbroker and a resident of Los Angeles, California, was at all relevant times the sole shareholder, Chief Executive Officer and President of China Investment Group, Ltd.
    
8. China Investment Group, Ltd. ("CIG") is, and at all relevant times was, a corporation organized pursuant to the laws of the British Virgin Islands with its principal place of business in Los Angeles, California.

THE OPERATION OF KERR'S FRAUDULENT SCHEME

9. As part of his fraudulent scheme, Kerr employed finders and other intermediaries to locate both potential investor victims and unregistered brokers who would act on behalf of such victims. In many instances, Kerr would arrange for these potential investor victims or unregistered brokers to be brought to Los Angeles for face-to-face meetings with Kerr, during which Kerr would present the supposed details of his fraudulent investment program.
    
10. One such meeting, which took place in July 1997 at Kerr's Los Angeles condominium, was typical and illustrative of Kerr's conduct of his fraudulent scheme. At this particular meeting, approximately twelve unregistered brokers from around the country, including two from Virginia, assembled. At the meeting, Kerr addressed the attendees and made numerous material misrepresentations to them, which he knew or was reckless in not knowing they would echo to investor victims. These material misrepresentations included Kerr's claims that he controlled a $200 million trust fund through his company, CIG; that he used the trust fund to trade MTNs; that this trading would generate returns of up to 13,860%; and that he personally guaranteed, and that the World Bank supported, his investment program.
     
11. In fact, all of these representations by Kerr were false or materially misleading, as Kerr well knew at the time, because, among other things, Kerr did not have control of a $200 million trust; could not conduct trading in MTNs; had no capacity to guarantee the investment; had no basis for representing the investment was safe or would generate the promised returns; and had no basis for claiming that he could personally guarantee, or that the World Bank supported, his investment program.
     
12. Shortly after the July 1997 meeting, the two Virginia brokers returned to Virginia, and what followed was typical of events and actions on the part of Kerr and other unregistered brokers and investor victims Kerr recruited for his scheme following similar meetings:
     
1. First, by echoing Kerr's false and materially misleading representations, the two Virginia brokers recruited twelve investors who placed a total of $325,000 in Kerr's fraudulent program. These funds were pooled into one of the Virginia brokers' accounts and from there delivered to Kerr and CIG, with the delivery of the funds completed by September 6, 1997, and accompanied by notations reflecting that the funds constituted an investment in Kerr's CIG program.
    
2. Next, Kerr provided the Virginia brokers with "Participating Notes," one reflecting a $200,000 investment and the other a $125,000 investment, in return for the investor funds they delivered to him. These notes stated a fixed interest amount of 10% and a default interest amount of 18%. Under the designation, "Additional Sums," the notes represented that Kerr and CIG would pay a portion of the gross profits earned from their "investment" activity in accordance with a "schedule of returns as described in Exhibit A." The "Exhibit A" attached to the $200,000 note reflected an "ROI" of 1,010% commencing in November 1997, culminating with an "ROI" of 13,860% in April 1999. Finally, each note stated that it was secured by Kerr's personal guarantee, and that returns would begin to be paid "45 international banking days" from the date of the note.
    
3. Thereafter, Kerr and CIG failed to perform as represented and, by the Fall of 1997, the Virginia brokers sought explanations from Kerr regarding the status of his program. By February of 1998, the Virginia brokers realized that Kerr and CIG would not perform and they sent a demand letter to Kerr threatening a lawsuit against him.
    
13. In collecting funds from other investor victims, Kerr and CIG engaged in the same pattern of fraudulent activity as just described beginning in approximately April of 1997, with such collections continuing until at least October of 1997. In doing so, Kerr and CIG issued "Participating Notes" similar to those described above. In connection with each investment in his fraudulent program, Kerr made, directly or indirectly, the same material misrepresentations as described above regarding, among other things, the nature of his investment program, the rates of return, and the safety of investors' principal. In no instance did Kerr or CIG perform as had been represented, but instead simply misappropriated the investors' funds.
     
14. Kerr and CIG each knew or was reckless in not knowing that their material misrepresentations and omissions to investors concerning the Kerr/CIG program were materially misleading at the time they were made.

FIRST CLAIM
Kerr and CIG Violated Exchange Act Section 10(b) and Rule 10b-5 in Connection With Their Sale of Participations in
the Fraudulent Investment Program

15. Paragraphs 1 through 14 are realleged and incorporated herein by reference.
     
16. By knowingly or recklessly misrepresenting the fraudulent nature of their investment program, and by otherwise making material misrepresentations, directly and indirectly, to investors in their program, Kerr and CIG directly and indirectly, by the use of the means and instrumentalities of interstate commerce, or of the mails, in connection with the purchase or sale of securities:
     
1. have employed devices, schemes, or artifices to defraud;
    
2. have made untrue statements of material fact, or have omitted, are omitting and are about to omit 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
    
3. have engaged in transactions, acts, practices and courses of business which operated as a fraud upon purchasers of securities.
    
17. By reason of the foregoing, Kerr and CIG have violated 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
Kerr and CIG Violated Section 17(a) of the Securities Act
Through Their Offer and Sale of Participations in Their
Fraudulent Investment Program

18. Paragraphs 1 through 14 are realleged and incorporated herein by reference.
     
19. By knowingly or recklessly misrepresenting the nature of the programs to investors, and by otherwise making material misrepresentations, directly and indirectly, to investors in their program, Kerr and CIG directly or indirectly, in the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails:
     
1. have employed devices, schemes or artifices to defraud;
    
2. have obtained money or property by means of untrue statements of material fact and 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
    
3. have engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud upon purchasers of securities.
    
20. By reason of the forgoing, Kerr and CIG have violated and are violating Section 17(a) of the Securities Act [15 U.S.C. § 77q (a)].

THIRD CLAIM
Kerr and CIG Violated Section 15(a) of the Exchange Act< br> Through Acting as Unregistered Broker-Dealers

21. Paragraphs 1 through 14 are realleged and incorporated herein by reference.
     
22. By engaging in the business of effecting transactions in securities for the account of others, Kerr and CIG each has acted as a broker or dealer, and each has made use of the mails or other means or instruments of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of any security (other than exempted security or commercial paper, bankers' acceptance, or commercial bills) without being registered in accordance with Section 15(b) of the Exchange Act [15 U.S.C. § 78o(b)].
     
23. By reason of the forgoing, Kerr and CIG, and each of them, has violated Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)].

FOURTH CLAIM
Kerr and CIG Violated Sections 5(a) and (c) of the Securities Act
Through Their Offer and Sale of Unregistered Securities

24. Paragraphs 1 through 14 are realleged and incorporated herein by reference.
     
25. The participations in the fraudulent investment program described herein constitute "securities" within the meaning of Section 2(a)(1) of the Securities Act [15 U.S.C. § 77b(a)(1)] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c(a)(10)].
     
26. At all relevant times, the securities being offered and sold by Kerr and CIG were not registered in accordance with the provisions of the Securities Act and no exemption from such registration was applicable.
     
27. Kerr and CIG, and each of them, directly or indirectly, has made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer and sell securities when no registration statement has been filed or was in effect as to such securities and when no exemption from registration was available.
     
28. By reason of the forgoing, Kerr and CIG, and each of them, has violated and is violating Sections 5(a) and (c) of the Securities Act [15 U.S.C. §§ 77e(a) and (c)].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court enter a Final Judgment that:

I.

Permanently enjoins the defendants and their agents, servants, employees, attorneys, and assigns and those persons in active concert or participation with them, and each of them, from violating Sections 10(b) and 15(a) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78o(a)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder; and Sections 5(a), 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)].

II.

Orders the defendants, and each of them, and their officers, agents, servants, employees, and attorneys, 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.

III.

Orders the defendants, and each of them, to pay civil penalties, pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)].

IV.

Grants such other relief as this Court may deem just and appropriate.

LOCAL COUNSEL:
Thomas A. Zaccaro, Cal. Bar No. 183241
Securities and Exchange Commission
5670 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90036-3648
(323) 965-3877; FAX: (323) 965-3908

Date: December 19, 2002