IN THE UNITED STATES DISTRICT COURT
SECURITIES AND EXCHANGE
Plaintiff Securities and Exchange Commission (the "Commission") alleges:
1. This action arises out of a prime bank scheme in which the Defendants, Mary Patten ("Patten"), Valenvalls Investment Corporation ("Valenvalls"), Scott Hamilton ("Hamilton") and Harold Miller ("Miller"), fraudulently offered and sold interests in a high-yield trading program called the Valenvalls Private Placement Program (the "VV-PP"). The Defendants raised more than $6 million from investors between January and May 1999 - and lulled investors into complacency for months thereafter - by making numerous materially false representations about the purportedly "risk-free" nature of the VV-PP, the purportedly "guaranteed" and exorbitant returns of the VV-PP, the purportedly "secure" accounts in which the funds would be held, the purported role of certain federal and international agencies in the VV-PP, and the purported imminence of profitable trading activity. Throughout the scheme, moreover, the Defendants withheld material information about their past experiences with similar trading programs that had resulted in substantial investor losses. To date, most of the investors have been reimbursed only a small percentage of their original investment.
2. By engaging in this conduct, the Defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a) and (c), and 77q(a)] and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Exchange Rule 10b-5 [17 C.F.R. § 240.10b-5]. Unless enjoined by this Court, the Defendants will likely continue to engage in such violations, and in acts, practices, and transactions of similar purport and object.
3. This Court has jurisdiction over this action pursuant to Securities Act Sections 20(d)(1) and 22(a) [15 U.S.C. §§ 77t(d)(1) and 77v(a)] and Exchange Act Sections 21(d), (e) and 27 [15 U.S.C. §§ 78u(d), (e) and 78aa]. In connection with the conduct described herein, 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.
4. Mary Patten, age 57, is a resident of Naples, Florida. Patten is, and at all relevant times was, the owner and principal of Valenvalls. Patten has never been licensed to sell securities. Patten's known aliases include Mary Maslach and Mary Evans.
5. Valenvalls is, and at all relevant times was, a New Zealand corporation with its principal place of business in Naples, Florida. Valenvalls has done business under a number of different pseudonyms, including: Valenvalls Investment Corporation Limited, Valenvalls S.A. and Valenvalls PLC.
6. Scott Hamilton, age 71, is a permanent resident of Shasta Lake, California. Currently, he is incarcerated in a federal prison camp in Oregon for activities in a different high-yield trading scheme. Hamilton was not licensed to sell securities during the time period relevant to this action.
7. Harold Miller, age 58, is a resident of Alta Loma, California. Miller has never been licensed to sell securities.
8. In January 1999, Defendants Hamilton and Miller, through the Oxford Groupe LLC ("Oxford"), a now defunct Nevada company, sought to launch and promote a "high-yield trading program" whereby investors could purportedly earn returns of 100 percent per week by pooling their funds to trade "Medium Term Notes" ("MTNs") issued by "Top European banks." Neither Hamilton nor Miller adequately researched whether trading MTNs or the returns they envisioned were possible.
9. Hamilton and Miller sought a vehicle to pool investors' funds and in February 1999, traveled to Naples, Florida to meet with Patten. Patten told Hamilton and Miller that she owned Valenvalls, which she described as an offshore securities firm. Although Patten knew that high-yield trading programs were illegitimate, she told Hamilton and Miller that Valenvalls would take investors' money on deposit and pay them an additional 20 percent return, over and above the guaranteed 100 percent per week contemplated by Hamilton and Miller. Based on Patten's assurances, Hamilton and Miller then began soliciting investors for the VV-PP, the name given to the trading program following their meeting with Patten.
10. Through oral representations and written offering materials distributed to investors through a network of brokers, Hamilton and Miller represented that: (1) investors' funds would be used to trade MTNs on a secret market; (2) MTN trading would yield returns averaging 100 percent per week; (3) investors' funds would be pooled at Valenvalls, a purportedly insured financial institution that would pay an additional 20 percent return (over and above the guaranteed 100 percent per week); and (4) the VV-PP was "fed controlled" and subject to International Monetary Fund ("IMF") rules and regulations. Hamilton and Miller never performed any investigation to verify the accuracy of these representations and knew, or were reckless in not knowing, that the representations were false and materially misleading. Hamilton and Miller made these representations to investors despite the fact that they had previously marketed similar "high-yield" trading programs that had resulted in investor harm. In one instance in 1998, British regulatory authorities forced Hamilton and Miller to return all the victims' monies, and in others, Hamilton was sued for, inter alia, fraud by several investors. Moreover, at the time he was soliciting VV-PP investors, federal criminal authorities were investigating Hamilton for his activities in a different high-yield trading program.
11. Patten, after having investors referred from Hamilton and Miller, sent the investors promotional materials about Valenvalls, which falsely represented that: (1) investors would receive individual accounts at Valenvalls, described as an `international financeria' that could trade bonds, currency, real estate, and securities and (2) Valenvalls would pay investors a 20 percent return on their investment (over and above the guaranteed 100 percent per week). She also instructed investors to wire their funds to Bankers Trust Company in New York, and from there the funds were wired to a Valenvalls' account at Cater Allen Bank in the Jersey Isles. Thereafter, Patten sent investors account statements falsely indicating that their funds were earning 20 percent in individual Valenvalls accounts. Patten, as Valenvalls' owner and only principal, knew or was reckless in not knowing that these representations concerning Valenvalls were materially false and misleading. Valenvalls was not a legitimate financial institution, did not have individual investor accounts, and was not earning, and had never earned, a 20 percent return for investors. In fact, Patten had converted some of the funds to her personal use without informing investors or obtaining their consent.
12. Patten made these representations to investors even though she had lost substantial investor funds in several previous investment scams. At least five investors or investor groups have asserted claims against Patten (and obtained judgments in at least two instances) totaling more than $10 million. Central to each of these claims are Patten's fraudulent misrepresentations about the safekeeping and investment returns for investment funds entrusted to her.
13. Responding to inquiries from VV-PP investors, Patten, Hamilton and Miller falsely assured the investors orally and in writing that trading in the VV-PP was imminent. For example, in a March 27, 1999 letter to investors, Miller wrote "[o]ur program is proceeding with vigor and we will begin trading immediately." In truth, Patten, Hamilton and Miller never took any steps to trade MTNs on any investor's behalf.
14. In July 1999, investors began demanding the return of their funds. Patten returned one investor's principal investment, but the Defendants continued to lull the remaining investors with false assurances that the VV-PP trading was on track. For example, in a letter to investors dated August 19, 1999, Miller wrote "[a]s of this date all of Oxford's client's funds have been committed to a Third Party Trading Opportunity." Furthermore, in a September 12, 1999 letter to an investor, Hamilton wrote "[m]y investigation revels [sic] a solid secure transaction taking place, with sufficient collateral backing it to feel very secure. I believe your funds are safe."
15. To date, none of the VV-PP investors have received any returns on
their VV-PP investments, and five investors are still awaiting the full return of their principal.
16. Paragraphs 1 through 15 are realleged and incorporated herein by reference.
17. By engaging in the conduct described above, the Defendants 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:
a. have employed devices, schemes, or artifices to defraud;
b. 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
c. have engaged in transactions, acts, practices and courses of business which operated as a fraud upon purchasers of securities.
18. By reason of the foregoing, the Defendants have violated Securities Act Section 17(a) [15 U.S.C. § 77q (a)].
19. Paragraphs 1 through 18 are realleged and incorporated herein by reference.
20. By engaging in the conduct described above, the Defendants directly or 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:
a. have employed devices, schemes or artifices to defraud;
b. 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
c. have engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud upon purchasers of securities.
21. By reason of the foregoing, the Defendants have violated Exchange Act Section 10(b) [ 15 U.S.C. § 78j (b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].
22. Paragraphs 1 through 21 are realleged and incorporated herein by reference.
23. By engaging in the conduct described above, the Defendants have each 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 securities, or to induce or attempt to induce the purchase or sale of securities, without being registered in accordance with Exchange Act Section 15(b).
24. By reason of the forgoing, the Defendants have violated Exchange Act Section 15(a) [15 U.S.C. § 78o(a)].
25. Paragraphs 1 through 24 are realleged and incorporated herein by reference.
26. The participations in the fraudulent investment program described herein constitute "securities" within the meaning of Securities Act Section 2(a)(1) [15 U.S.C. § 77b(a)(1)] and Exchange Act Section 3(a)(10) [15 U.S.C. § 78c(a)(10)].
27. At all relevant times, the securities being offered and sold by the Defendants were not registered in accordance with the provisions of the Securities Act and no exemption from such registration was applicable.
28. The Defendants, directly or indirectly, have 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.
29. By reason of the forgoing, the Defendants have violated Securities Act Sections 5(a) and (c) [15 U.S.C. §§ 77e(a) and (c)].
WHEREFORE, the Commission respectfully requests that this Court enter a Final Judgment that:
Permanently enjoins the Defendants and their agents, servants, employees, attorneys and assigns and those persons in active concert or participation with them from violating Exchange Act Sections 10(b) and 15(a) [15 U.S.C. §§ 78j(b) and 78o(a)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; and Securities Act Sections 5(a), 5(c) and 17(a) [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)].
Orders the Defendants and their officers, agents, servants, employees, and attorneys, to account for and 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.
Orders the Defendants to pay civil penalties, pursuant to Securities Act Section 20(d) [15 U.S.C. § 77t (d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u (d)(3)].
Grants such other relief as this Court may deem just and proper.
Dated: June ___, 2003
By: KENNETH J. GUIDO (Cal. Bar No. 040020)
Assistant Chief Litigation Counsel
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549-0911
Telephone: (202) 942-7933
Facsimile: (202) 942-9581
PAUL R. BERGER
RUSSELL G. RYAN
DEREK M. MEISNER
JO E. METTENBURG
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