IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO

Civil Action No. 04-WM-354 (BNB)

COMPLAINT FOR INJUNCTION, ASSET FREEZE, OTHER EQUITABLE RELIEF AND CIVIL MONEY PENALTIES

SUMMARY

1. Kelsey L. Garman controls and directs the activities of four funds that pool the money of unsophisticated individual investors. Garman is the general and managing partner of three funds, Koinonia 100/200, Koinonia Investment Club, II and the Koinonia Kingdom Club and Garman serves as the sole nominee trader for another group of investors doing business as the Koinonia Income Account (collectively "The Koinonia Funds").

2. Garman has controlled and operated the Koinonia Funds since at least 1997. Garman trades securities on behalf of each of the Koinonia Funds. Garman falsely claims to have had spectacular success trading securities on behalf of the Koinonia Funds. For example, Garman's offering and promotional materials claimed, among other things, that the Koinonia 100/200 Fund achieved a 32 percent annual return on trading in the last three years and a 119 percent return in the last forty-five months. Garman also claimed that each of his trades had an 80 percent chance of being profitable. Garman further claimed that the Koinonia 100/200 fund "is a good way to hedge against stock market declines" and that each of the Koinonia Funds incurred "Low Risks" and were "carefully managed to minimize risks."

3. In fact, the Koinonia Funds as a whole have had substantial losses, rather than the gains touted by Garman to investors and potential investors. Of the approximately $15.5 million representing initial investments and purported market gains initially reported by Garman to investors in the funds, only approximately $8.5 million now remains due to Garman's undisclosed trading losses in two of the Koinonia Funds.

4. Garman trades securities on behalf of each of the Koinonia Funds in accounts in his own name, not in the name of the separate Koinonia Funds. Garman has also commingled Koinonia Funds' monies in his personal bank accounts.

5. Garman has misrepresented at least to investors in the Koinonia Income Club, II and the Koinonia 100/200 Fund that their respective partnerships have experienced investment gains when in fact they have suffered substantial trading losses. Garman has made such misrepresentations in quarterly statements sent to investors, in his "Christian Financial Adviser" newsletter, and in Financial Foneline updates delivered via a toll-free telephone number and Internet postings on his web site.

6. Garman targeted the marketing of the Koinonia Funds to members of an organization founded by him named the Fellowship of Christian Investors. Garman also publicly offered and sold interests in the partnerships using the Internet.

JURISDICTION AND VENUE

7. 7. The Commission brings this action pursuant to Section 22(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77v], Section 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78u(e)], Section 209(d) of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-9(d)], and Section 42(d) of the Investment Company Act of 940 ("Investment Company Act") [15 U.S.C. § 80a-41(d)].

8. Venue lies in this Court pursuant to 28 U.S.C. 1391(b)(1). Many of the investors in Garman's scheme reside in the Colorado and many of the acts and practices described in this complaint occurred in Colorado.

RELIEF SOUGHT

9. The Commission requests that the court enter permanent injunctions prohibiting each defendant from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§77e(a), e(c), and q(a)]; Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 promulgated thereunder [17 C.F.R. 240.10b-5]; and 78j(b)] and Section 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Investment Advisers Act") [15 U.S.C. §§ 80b-3, 80b-6(1) and (2)] and the Koinonia Fund defendants from violations of Section 7(a) of the Investment Company Act of 1940 ("Investment Company Act") [15 U.S.C. § 80a-7].

10. The Commission requests that the court order defendants to disgorge all ill-gotten gains that are the subject of this complaint.

11. The Commission further requests that the court enter further equitable relief in the form of an accounting, an asset freeze and appointment of a receiver to take control and possession of the assets of the partnerships.

12. The Commission also requests that the court enter third tier civil money penalties against Garman pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)]; Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]; and Section 209(e) of the Investment Advisers Act [15 U.S.C. 80b-9(e)].

DEFENDANTS

13. Kelsey Garman, age 69, is a resident of Springfield, Missouri. Until recently, Garman resided in the Aurora Colorado. In promotional literature Garman claims to have been a financial planner since 1983.

14. Koinonia Investment Club II, is a Colorado general partnership. Garman is the managing general partner and makes all investment and business decisions on behalf of the partnership. Koinonia Investment Club II has at least 60 investors who are unsophisticated and do not have the ability to actively manage the investments or business affairs of the partnership.

15. Koinonia 100/200, is a Colorado general partnership. Garman is the managing partner and makes all investment and business decisions on behalf of the partnership. It has at least 200 investors who are unsophisticated and do not have the ability to actively manage the investments or business affairs of the partnership.

16. Koinonia Kingdom Club is a Colorado general partnership. Garman is the managing general partner and makes all investment and business decisions on behalf of the partnership. Koinonia Kingdom Club investors are unsophisticated and do not have the ability to actively manage the investments or business affairs of the partnership.

17. Koinonia Income Account, is a dba directed and controlled by Garman that has at least 200 investors. Investors in Koinonia Income Account agreed to pool their money and allow only Garman to trade securities on their behalf.

FACTS

18. Garman actively marketed the partnerships over the Internet through an organization known as the Fellowship of Christian Investors ("FCI"). Garman claims to have founded the FCI and that the FCI's mission is to "glorify our Lord Jesus Christ by using every available means to teach biblical principles of money management…"

19. In marketing the funds Garman falsely claims, among other things, to have had spectacular success trading securities on behalf of the Koinonia Funds. With respect to the Koinonia 100/200 Fund, Garman has claimed to have achieved a 32 percent annual return on trading in the last three years and a 119 percent return in the last forty-five months. Garman also claims that each of his trades has an 80 percent chance of being profitable. Garman claims that one of the Koinonia Funds "is a good way to hedge against stock market declines." He claims that the Koinonia Funds offer "Low Risks" and that they are "carefully managed to minimize risks."

20. In fact, recently the Koinonia Income Account and Koinonia 100/200 funds have had significant market losses that Garman has not disclosed to investors in the funds. Instead, Garman has falsely reported to investors in those funds, that he has had trading gains. Garman told Koinonia Income Account fund investors the fund had a total of $7 million in principle and trading gains. In fact, the fund currently owns securities worth only $5.1 million. Garman told Koinonia 100/200 fund investors that the fund had a total of about $7 million in principle and trading gains. The fund currently owns securities worth only about $2.3 million.

21. Garman trades for the Koinonia Funds in accounts that are denominated in his name, not the name of the funds.

22. Garman has commingled monies from the Koinonia Funds in personal bank accounts.

23. Garman receives compensation from each of the Koinonia Funds based on a percentage of money under management.

24. Koinonia Investment Club II, Koinonia Income Account, Koinonia 100/200, and Koinonia Kingdom Club are not registered with the Commission as investment companies. The securities offerings of the Koinonia Investment Club II, Koinonia 100/200 and Koinonia Kingdom Club were not registered transactions with the Commission and were not exempt from registration.

25. From at least January 2000 to the present, Garman has for compensation been in the business of advising others, directly or indirectly as to the value of securities or as to the advisability of investing in, purchasing, or selling securities for Koinonia Investment Club II, Koinonia Income Account, Koinonia 100/200 and Koinonia Kingdom Club.

FIRST CLAIM FOR RELIEF - FRAUD

Violations of Section 10(b) and Rule 10b-5 thereunder of the Exchange Act [15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5]

26. Paragraphs 1 through 25 are hereby re-alleged and incorporated by reference.

27. All Defendants, directly and indirectly, by the use of the means and instrumentalities of interstate commerce, or of the mails, with scienter, in connection with the purchase and sale of securities: (a) have employed, are employing, and are about to employ devices, schemes, or artifices to defraud; (b) have made, are making and are about to make 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 acts, practices or courses of business which have operated, are operating and will operate as a fraud or deceit upon other persons, including purchasers and sellers of such securities.

28. Defendants, have violated, and will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] unless restrained and enjoined.

SECOND CLAIM - FRAUD

Violations of Sections 206(1) and 206(2) of the Investment Advisers Act [15 U.S.C. §§ 80b-3, 80b-6(1) and (2)]

29. Paragraphs 1 through 25 are hereby re-alleged and incorporated by reference.

30. Defendant Garman in connection with its business as an investment adviser, by use of the mails or means or instrumentalities of interstate commerce, directly or indirectly, employed devices, schemes or artifices to defraud clients and prospective clients; engaged in transactions, practices or courses of business which have operated or would have operated as a fraud or deceit upon clients or prospective clients.

31. Defendant Garman has violated, and unless restrained and enjoined, will continue to violate Sections 206(1) and 206(2) of the Investment Advisers Act [15 U.S.C. §§ 80b-3, 80b-6(1) and (2)].

THIRD CLAIM - FRAUD

Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)]

32. Paragraphs 1 through 25 are hereby re-alleged and incorporated by reference.

33. All 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, with scienter, have employed, are employing, or are about to employ devices, schemes or artifices to defraud.

34. Defendants have violated, and will continue to violate Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)] unless restrained and enjoined.

FOURTH CLAIM - FRAUD

Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. 77q(a)(2) and 77q(a)(2)]

35. Paragraphs 1 through 25 are hereby re-alleged and incorporated by reference.

36. All 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 obtained, are obtaining or are about to obtain 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 (b) have engaged, are engaged, or are about to engage in transactions, acts, practices and courses of business that operated or would operate as a fraud upon purchasers of securities.

37. Defendants have violated, are violating, and will continue to violate Section 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(2)] unless restrained and enjoined.

FIFTH CLAIM - SALE OF UNREGISTERED SECURITIES

Violations of Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. 77e(a) and (c)]

38. Paragraphs 1 through 25 are hereby re-alleged and incorporated by reference.

39. All Defendants have directly or indirectly, singly or in concert, made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer and sell securities through the use or medium of a prospectus or otherwise; or carried securities or caused securities to be carried through the mails or interstate commerce, by means or instruments of transportation, for the purpose of sale or for delivery after sale; and made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to buy securities through the use or medium of a prospectus or otherwise, without a registration statement having been filed or being in effect with the Commission as to such securities.

40. Defendants have violated, and unless restrained and enjoined, will continue to violate Section 5(a) and 5(c) of the Securities Act [15 U.S.C. § 77e(a) and (c)].

SIXTH CLAIM - UNREGISTERED INVESTMENT COMPANY

Violations of Section 7(a) of the Investment Company Act [15 U.S.C. § 80a-7(a)]

41. Paragraphs 1 through 25 are hereby re-alleged and incorporated by reference.

42. Koinonia Investment Club II, Koinonia Income Account, Koinonia 100/200 and Koinonia Kingdom Club, in connection with their business as an investment company, have been and may be offering to sell, selling, delivering after sale to the public, purchasing or otherwise acquiring or attempting to acquire, by the use of the mails or another means or instrumentality of interstate commerce, securities, without having registered with the Commission as investment companies.

43. Koinonia Investment Club II, Koinonia Income Account, Koinonia 100/200 and Koinonia Kingdom Club, violated and unless restrained and enjoined they will continue to violate Section 7(a) of the Investment Company Act. [15 U.S.C. § 80a-7(a)]

PRAYER FOR RELIEF

The Commission requests that the Court order the following relief:

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

A.

Enter Findings that each defendant committed the violations alleged in this complaint.

B.

Enter Preliminary and Permanent Injunctions, restraining and enjoining defendants and their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice by personal service or otherwise, from violating or any of the violations alleged.

C.

Enter an Order freezing the assets of defendants, ordering the appointment of a receiver to take possession and control of their premises and assets.

D.

Order that defendant Garman disgorge all illegal gains, together with prejudgment and post judgment interest.

E.

Order that defendant Garman pay civil money penalties pursuant to pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)]; Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]; and Section 209(e) of the Investment Advisers Act [15 U.S.C. 80b-9(e)].

F.

Order that Defendant Garman prepare a sworn accounting of his assets and liabilities.

Respectfully submitted this ______________ day of _____________2004.

/s/_________________________________
Robert M. Fusfeld
Kurt L. Gottschall
Securities and Exchange Commission
1801 California Street, Suite 1500
Denver, Colorado 80202
Direct: 303/844-1080
Facsimile: 303/844-1068

http://www.sec.gov/litigation/complaints/comp18602.htm