IN THE UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF
It appears to Plaintiff, Securities and Exchange Commission ("Commission" or "SEC"), and it alleges that:
1. Dianna Blairtorbett a/k/a Dianna Blair Torbett a/k/a Dianna Blair-Torbett (hereafter "Blairtorbett"), individually and d/b/a McMinn Consultants, and McMinn Consultants Limited, (hereafter "McMinn") have fraudulently offered and sold investment contracts by promising extravagant rates of return derived from a variety of investments, including purported "Prime Bank" trading programs.
2. Blairtorbett raised approximately $7.7 million from nearly 100 investors in 13 states between 1997 and 1999. The investor funds were pooled in accounts owned and controlled by McMinn and were to be invested by Blairtorbett, who continued lulling activities at least through May 2001.
3. Throughout the scheme, Blairtorbett made numerous misrepresentations to investors. Her description of the Prime Bank trading programs was fraudulent, as such programs do not exist.
4. Blairtorbett knowingly or with recklessness represented that McMinn's investments were risk-free and were secured by approximately $7 billion of gold and other precious metals. The purported gold and other precious metals were non-existent.
5. She knowingly or with recklessness represented that an initial investment of $50,000 would be worth approximately $1.7 million in three years and approximately $22 million in five years, but had no basis for these representations.
6. In addition, Blairtorbett overstated McMinn's assets to investors. Moreover, she represented that investor funds would be invested in various projects, including several real estate developments.
7. Blairtorbett knowingly or with recklessness failed to disclose, however, that a significant percentage of these funds were used to pay the "returns" of earlier investors.
8. Blairtorbett also misappropriated investor funds, and continued to lull investors into believing they would receive the promised returns.
9. Defendants Blairtorbett and McMinn, directly and indirectly, engaged, and unless enjoined will engage in transactions, acts, practices and courses of business that have constituted and will constitute violations of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c)], Section 17(a) of the 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.
10. Pursuant to authority granted by Sections 10(b) and 23(a) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78w(a)], the Commission has promulgated Rule 10b-5 [17 C.F.R. 240.10b-5], which rule was in effect at all relevant times herein and is now in effect.
JURISDICTION AND VENUE
11. The Commission brings this action pursuant to Sections 20(b) and 20(d) of the Securities Act [15 U.S.C. §§ 77t(b) and 77t(d)] and Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78u(d) and 78u(e)] to enjoin the defendants from engaging in transactions, acts, practices and courses of business alleged in this complaint, and transactions, acts, practices, and courses of business of similar purport and object, for disgorgement of illegally obtained funds and other equitable relief, and for civil money penalties.
12. This Court has jurisdiction of this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d) and 77v(a)] and Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa].
13. The defendants, directly and indirectly, have made use of the mails, the means and instruments of transportation and communication in interstate commerce, and the means and instrumentalities of interstate commerce, in connection with the transactions, acts, practices and courses of business alleged in this Complaint.
14. Venue lies in this Court 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] because Blairtorbett resides within this district, and certain of the transactions, acts, practices and courses of business constituting violations of the Securities Act and the Exchange Act have occurred in the Eastern District of Tennessee, including the solicitation of investors who reside within the Eastern District of Tennessee. Among other things, Blairtorbett maintained an office and principal place of business for McMinn within the Eastern District of Tennessee.
15. Dianna Blairtorbett a/k/a Dianna Blair Torbett a/k/a Dianna Blair-Torbett, Individually and d/b/a/ McMinn Consultants ("Blairtorbett"), age 43, resides in Etowah, Tennessee. She dropped out of school in the eighth or ninth grade, has worked in the funeral industry and has sold life insurance. Beginning around 1991, Blairtorbett provided consulting services on "acquisition and land contracts," doing business as McMinn Consultants. In 1997, as an outgrowth of her consulting business, Blairtorbett began soliciting money from investors to invest with McMinn Consultants. She has deposited investor funds in at least four bank accounts that she opened in the name of McMinn and has supported herself and paid personal expenses from these investor funds. Blairtorbett has never been associated with a registered entity.
16. McMinn Consultants, Limited ("McMinn"), was incorporated in the Bahamas in July 1998. Blairtorbett used this entity to continue the investment scheme that began under the various names for McMinn Consultants. McMinn has no officers, however Blairtorbett is the sole director. McMinn is the only legal entity that Blairtorbett established and used in the investment scheme. In May 1999, Blairtorbett opened one of the four McMinn bank accounts in the name of McMinn Consultants, Limited and deposited investor funds into the account.
17. Blairtorbett, individually and d/b/a McMinn Consultants, is currently in Chapter 7 bankruptcy proceedings pursuant to an Involuntary Petition filed by three investors. On July 26, 2002, the U.S. Bankruptcy court for the Eastern District of Tennessee issued an Order for Relief and appointed a bankruptcy trustee.
18. The Tennessee Department of Commerce, Insurance and Securities Division issued a cease-and-desist Order prohibiting Blairtorbett and McMinn from engaging in unregistered sales of securities, acting as an unregistered broker-dealer and engaging in fraud in the sale of the same securities that are the subject of this Complaint. The order became final on March 13, 2002.
OVERVIEW OF THE INVESTMENT SCHEME
19. Beginning in early 1997, Blairtorbett solicited investments in what she represented to be no-risk, high-yield investment opportunities. Blairtorbett told investors, orally and in writing, that she invested their funds in prime bank debenture trading programs, mining projects, hotel and resort land development projects, a theme park, hotel renovation projects, commodities and artifacts.
20. Blairtorbett provided few specifics regarding the various investment projects and generally did not allow investors to keep copies of any promotional materials. In one document prepared for investors, Blairtorbett falsely stated that investor funds were "used to buy or trade, debt paper, artifacts, precious jewels and metals, insurances, and other collateral bases, bought or acquired [sic] at a discount and then traded or sold at fair market value. . . . This method is found to be the safest, yet highest yield program worldwide."
21. Blairtorbett persuaded individuals to become members of McMinn and invest by promising extravagant returns (a $50,000 initial investment being worth $1.7 million in three years and $22 million in five years) and by misrepresenting to investors their funds were not at risk because they were secured by gold.
22. Although Blairtorbett has little education and no professional background in finance or investing, she professed to make investment decisions regarding a wide variety of investments, and assured investors that she had personally investigated the various investment opportunities by conducting site visits and obtaining the advice of consultants.
23. Blairtorbett collected approximately $7.7 million from nearly 100 investors in at least 13 states, from 1997 through 1999. She continued lulling activities at least through May 2001.
24. Generally, Blairtorbett required a minimum investment of $50,000 paid to McMinn, but did not rigidly enforce the amount requirement. The investor funds were pooled in McMinn bank accounts that Blairtorbett controlled.
25. The new investors signed several agreements including a membership agreement. Investors became "members" of an unincorporated entity named Asset Management Associates, which was also controlled by Blairtorbett.
26. Blairtorbett collectively referred to the individuals, who invested their funds with McMinn, as Asset Management Associates. McMinn and Asset Management Associates were used interchangeably in the membership agreements.
27. Blairtorbett conducted membership meetings several times each year purportedly for the purpose of giving a progress report on the various McMinn investments. At these meetings, Blairtorbett was vague and avoided giving specific information to the investors; however, she assured the investors that their investments were doing well.
28. Blairtorbett made periodic payments to some investors that, in keeping with a classic Ponzi scheme, had the effect of convincing investors that the McMinn investments were profitable.
29. A few of the investors requested and received monthly payments from McMinn. The payments, however, did not come from profits derived from the McMinn investments-there were no profits. Instead, the McMinn bank account records show that the source of the payments was from other investor funds received by McMinn.
A. Blairtorbett Misrepresented The Existence of Prime Bank Debenture
30. Blairtorbett knowingly or with recklessness misrepresented to investors that McMinn had invested in profitable Prime Bank debenture trading programs. Blairtorbett knew at all times that McMinn had not so invested. Blairtorbett conducted several meetings with investors devoted exclusively to Prime Bank debenture trades and she provided investors with a document that stated that McMinn received "current and consistent returns" from "debenture trades" that were giving a "consistently high yield in the straddle market." Blairtorbett knew that these statements were false. There were no such investments.
31. Blairtorbett knowingly or with recklessness misrepresented to investors, orally and in writing, that these trading programs included trading debt paper, debentures, and bank notes. Because Prime Bank trading programs do not exist, Blairtorbett did not actually invest any investor funds in these trading programs.
32. Blairtorbett knowingly or with recklessness misrepresented to investors that they would receive an unrealistically high rate of return that she had no reasonable expectation she could achieve.
33. Initially, the investors signed an agreement that guaranteed a specific return. For example, an agreement dated in April 1997 stated that an investment of $50,000 would be worth $200,000 after one year.
34. Blairtorbett gave investors a document that projected the value of a $50,000 investment to be worth more than $1.7 million in three years and nearly $22 million in five years. Blairtorbett had no basis whatsoever for making such absurdly high projections.
35. She told investors that the returns would be derived from profits on investments she made for McMinn in Prime Bank trading programs, mining projects, and real estate developments. Blairtorbett made no such investment in the former of these. Investments made in the latter two returned no profit.
36. Blairtorbett spent a significant amount of investor funds on the mining project of West Texas Metals, Inc., a Texas Corporation, located near El Paso, Texas. West Texas Metals was purportedly in the business of mining and selling gold and other precious metals.
37. Blairtorbett paid "between $1.2 and $1.4 million" "direct[ly] to West Texas Metals" to finance the "project," and claimed that by providing "working capital" for West Texas Metals, McMinn "could make from $1,000 to $10,000 a week from the gold that was extracted." The McMinn bank records reveal that she paid at least $1 million for various expenses related to the West Texas Metals project. McMinn received no return on this investment.
38. McMinn also made investments in two hotel and resort projects and one theme park. For each of these investment projects, Blairtorbett spent investor funds to pay for the preparation of preliminary feasibility studies; however, none of the projects entered a construction or operational phase and none of them returned a profit.
39. In 1997, McMinn invested $200,000 in a proposed hotel and resort project in Eritrea, located on the African continent. As a result of a border dispute that erupted into a war between Ethiopia and Eritrea in 1998 and internal political conflicts, the project never progressed.
40. In 1998 and 1999, McMinn invested $200,000 in a proposed resort hotel and resort project in Montserrat, in the British West Indies. A series of volcanic eruptions that began in 1995 and continued for a three-year period destroyed approximately two-thirds of that island. No financing was raised to construct the hotel and there were no projections of future profits from this project.
41. By October 1999, McMinn invested $630,000 in a proposed theme park near San Antonio, Texas. However, Blairtorbett failed to raise between $20 or $30 million in equity financing that was required for this project.
42. The theme park investment has not produced a profit and it would still take approximately seven years to complete.
43. The company that prepared the feasibility studies advised Blairtorbett that the investment projects were extremely risky, that substantial amounts of capital needed to be raised to finance construction costs, that failure to raise such funding would end the projects, and that the projects would need to be operational for as long as two or three years before they could expect to be profitable.
44. None of these projects have progressed beyond a feasibility study and none of these investments have been successful.
C. Blairtorbett Misrepresented Investments As Risk-Free
45. Blairtorbett knowingly misrepresented to investors that their investments were risk-free because gold and other precious metals secured them. McMinn never had any gold or any other precious metals.
46. Membership agreements executed in 1997 misrepresented that one's investment was "collateralized by Gold grade 999.5."
47. Although the membership agreements did not mention gold as collateral after 1997, Blairtorbett continued to tell investors that their investments were collateralized by gold. In fact, the investments were never collateralized by gold or other precious metals.
48. In reality, all "ore" stored in vaults at the West Texas Metals site was magnetite, a magnetic black iron ore, not a material that contained large concentrations of gold or other precious metals.
49. Blairtorbett had no reasonable basis to believe that McMinn ever actually obtained the rights to the ore, valuable or not, from West Texas Metals.
50. In June 1997, McMinn entered into a contract to acquire the rights to the ore and to pay West Texas Metals $1.2 billion per year for five years.
51. McMinn never had the financial resources to make such absurdly large payments, and Blairtorbett was aware of that fact.
52. Sometime between April and October 1998, a chemical engineer, who Blairtorbett hired to verify the value of the material in the West Texas Metals vaults, told her that he could not do so because he had neither collected nor tested any samples from any vaults.
53. In August or September of 1998, Blairtorbett learned from an assay report that the ore in one of the West Texas Metals vaults was worthless.
54. Nevertheless, Blairtorbett continued after September 1998 to assert to investors, without any basis therefore, the existence of McMinn's gold holdings. She went so far as to show investors a document that falsely valued the West Texas Metals ore at $41.5 billion.
D. Blairtorbett Overstated The Value of McMinn's Assets
55. In 1998, Blairtorbett showed investors a document that listed McMinn's purported assets.
56. Among the assets listed were commercial paper falsely valued at $5 billion and gold and other precious metals stored in vaults and which she falsely valued at more than $7 billion.
57. Blairtorbett had no reasonable basis for these valuations.
58. For example, she purchased the commercial paper for $26,700 and although McMinn held the commercial paper for three or four years, it has not made any money on it.
59. Blairtorbett similarly had no basis for the valuation of the gold and other precious metals.
E. Blairtorbett Misrepresented How Investor Funds Would Be Used
60. Blairtorbett represented that investor funds would be put into McMinn and used to invest in a variety of different projects.
61. In reality, Blairtorbett used $2.5 million of investor funds to pay the "returns" that McMinn paid to earlier investors. This was not disclosed to investors.
62. In addition, Blairtorbett supported herself and paid personal expenses from investor funds.
63. Blairtorbett lulled investors into believing that the promised returns, although delayed, were still possible.
64. In December 1999, McMinn stopped accepting new investors and in September 2000, McMinn declared a "moratorium" and ceased holding membership meetings or making payments to investors.
65. However, Blairtorbett continued to confidently misrepresent to the investors that their investments were secure without disclosing that most, if not all, of them had either failed outright or at least had not produced any return.
66. She continued to tell investors that their money was secured by gold when she knew this was not true.
67. Blairtorbett waited until May 2001 to tell investors that their investments were not secured by gold or other precious metals or that the money invested in Eritrea had been lost.
68. Blairtorbett continued, however, to assert that investors might receive a return on the Montserrat and theme park investments. She had no basis for that claim.
69. Blairtorbett also made various excuses when delaying and refusing to return investor funds.
70. In March 1999, when one individual demanded his invested funds and promised returns, Blairtorbett alternately claimed, falsely, that there was a computer failure or that she was sick, or blamed some other entity. Blairtorbett has not returned his funds despite several written demands.
71. In August 1999, after another person demanded the return of his initial investment, Blairtorbett required the investor to make a written request for his funds and then ignored the request.
72. Later, she wrote the investor a check, but the check bounced. The investor ultimately received $16,000, eight months after requesting a return of his $50,000 investment.
Blairtorbett's Misuse of Investor Funds
73. Contrary to her representations to investors that the funds would be invested, Blairtorbett withdrew or caused investor funds to be withdrawn from McMinn's bank accounts to pay her personal expenses.
74. Investor funds and Blairtorbett's personal funds were commingled in at least two bank accounts in the name of McMinn.
75. During the years 1997 through 2000, Blairtorbett spent approximately $270,555 of investor funds for personal expenses, such as life insurance, rent, childcare and family medical expenses.
76. Upon information and belief, the amount Blairtorbett misappropriated is higher than $270,555 because she has paid approximately $1,207,538 to various entities and individuals for expenses.
77. Blairtorbett has spent at least $32,656 for travel, and has paid approximately $34,894 to individuals she called "employees" or "contractors."
78. She also claims to have transferred an unknown sum of investor funds to a Bahamian bank account that she controlled and invested the funds in various investment projects.
79. While Blairtorbett contends that she invested in commodities, an "insurance trust" and a "currency arbitrage program" in the Bahamas, she has failed to produce any documents to support that claim.
80. Virtually all the money raised by Blairtorbett in this scheme had been dissipated by June 2000.
81. Of the approximately $7.7 million raised by Blairtorbett from investors, she used approximately $3.7 million in the various "investment projects."
82. Blairtorbett used another $2.5 million to pay supposed "returns" to earlier investors.
UNREGISTERED OFFERING OF SECURITIES
83. The McMinn investment scheme entails the offer and sale of securities, as that term is defined in 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)].
84. No registration statement is in effect, nor has a registration statement been filed with the Commission, with respect to the securities sold by Blairtorbett or McMinn.
CLAIMS FOR RELIEF
COUNT I-REGISTRATION VIOLATIONS
Violations of Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c).
85. Paragraphs 1 through 84 are hereby realleged and are incorporated herein by reference.
86. No registration statement has been filed or is in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the McMinn investment scheme and transactions in such scheme described herein.
87. At various times from at least 1997 through at least 1999, the Defendants, directly and indirectly, have:
a. made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell the securities described herein, through the use or medium of any prospectus or otherwise, when a registration statement was not in effect as to such securities;
b. carried securities or caused such securities, as described herein, to be carried through the mails or in interstate commerce, by means or instruments of transportation, for the purpose of sale or for delivery after sale, when a registration statement was not in effect as to such securities; and
c. made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy, through the use or medium of any prospectus or otherwise, the securities described herein, without a registration statement having been filed as to such securities.
88. These acts include, but are not limited to, the activities described in paragraphs 1 through 84 of this Complaint.
By reason of the foregoing, Defendants Blairtorbett and McMinn, directly and indirectly, 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)].
Violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]
89. Paragraphs 1-84 are hereby realleged and are incorporated herein by reference.
90. From 1997 through 1999, the Defendants Blairtorbett and McMinn, in the offer of securities, specifically the above-described securities, by use of the means and instruments of transportation and communication in interstate commerce or by use of the mails,
(a) directly and indirectly employed devices, schemes and artifices to defraud purchasers of such securities;
(b) directly and indirectly obtained money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, not misleading; and
(c) engaged in transactions, practices and a course of business which would have operated as a fraud or deceit upon the purchasers of such securities, all as more particularly described in paragraphs 1-84 above.
91. Defendants Blairtorbett and McMinn intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud.
92. By reason of the foregoing, Defendants Blairtorbett and McMinn have violated and, unless restrained and enjoined, will continue to violate §17(a) of the Securities Act [15 U.S.C. § 77q(a)].
Violations 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]
93. Paragraphs 1-84 are hereby realleged and are incorporated herein by reference.
94. From 1997 through 1999, the Defendants Blairtorbett and McMinn, by their conduct as set forth above, singly and in concert, by the use of means and instrumentalities of interstate commerce and by the use of the mails, directly and indirectly:
(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 operated as a fraud and deceit upon persons, all more particularly described in paragraphs 1-84 above.
95. Said defendants knowingly, intentionally and/or recklessly engaged in the above-described conduct.
96. By reason of the foregoing, Defendants Blairtorbett and McMinn have violated and, unless restrained and enjoined will continue to violate § 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Plaintiff Commission, respectfully prays for:
Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure, finding that the Defendants named herein committed the violations alleged herein.
Permanent injunctions enjoining the Defendants, their officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of the order of injunction, by personal service or otherwise, and each of them, whether as principals or as aiders and abettors, from violating, directly or indirectly, Sections 5(a), 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder.
An order requiring an accounting by the Defendants of the use of proceeds of the sales of the securities described in this Complaint, as well as the disgorgement of all ill-gotten gains or unjust enrichment. An order which directs the Defendants to pay prejudgment interest, to effect the remedial purposes of the federal securities laws.
The Commission seeks an order 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)] imposing civil penalties against the Defendants.
Such other and further relief as this Court may deem just, equitable, and appropriate in connection with the enforcement of the federal securities laws and for the protection of investors.
COUNSEL FOR PLAINTIFF