IN THE UNITED STATES DISTRICT COURT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
WILLIAM E. LYONS,
Civ. Act. No.
Plaintiff, United States Securities and Exchange Commission (SEC) for its complaint against William E. Lyons (Lyons), alleges:
1. From September through December 2002, Lyons, a former Bear, Stearns & Co. (Bear Stearns) broker, acting through his wholly owned financial services company, The SV Group, LLC (SV Group), became involved in an attempt to consummate the sale of a multi-million dollar so-called "zero coupon bank guarantee notes" to Bear Stearns and three other financial institutions. At no time did Lyons conduct any type of independent inquiry into the bona fides of the investments he was offering or into the individuals who presented him with the opportunity to market the investments. Nevertheless, Lyons engaged Bear Stearns in discussions for more than three months and provided Bear Stearns with documentation explaining the purported investment opportunity. Lyons' efforts were designed to convince Bear Stearns to pay $200 million for a purported "zero coupon bank guarantee note" that Lyons said would be worth $220 million one year after its purchase. Ultimately, Lyons' efforts to consummate the sale of the purported investment, which included solicitations of three other financial institutions, were unsuccessful.
2. The scheme in which Lyons became involved is a common but often sophisticated fraud known as a prime bank scam. The SEC, the Federal Deposit Insurance Corporation ("FDIC") and the Board of Governors of the Federal Reserve System, among other federal government entities, repeatedly have warned the public that prime bank instruments do not exist and any program purporting to trade such instruments is fraudulent and unlawful.
3. By engaging in the aforementioned conduct, Lyons violated certain of the antifraud provisions of the federal securities laws. Accordingly, the SEC is seeking injunctive relief and civil penalties to address this conduct and to prevent Lyons from engaging in similar conduct in the future.
4. The SEC brings this action, and this Court has jurisdiction over this action, pursuant to authority conferred by Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77t(b), 77t(a) and 77v(a)]; and Sections 21(d), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d), 77u(e) and 78aa].
5. This Court has personal jurisdiction over Defendant Lyons and venue is proper in the Eastern District of Virginia because many of the transactions, acts, practices, and courses of business constituting the violations alleged herein occurred within this District and because Lyons resides within this District.
6. Lyons, directly and indirectly, has made use of the means and instrumentalities of interstate commerce, and the means and instruments of transportation and communication in interstate commerce, in connection with the transactions, acts, practices, and courses of business alleged within this Complaint.
7. Lyons, age 40 was the founder and sole owner of The SV Group, LLC, a financial services entity, which Lyons operated out of his home in Great Falls, Virginia. SV Group ceased operations on October 31, 2003. From 1992 through 1996, Lyons was employed as a broker at Bear Stearns. By the time Lyons had left Bear Stearns, he had attained the position of Managing Director in the mortgage-backed securities trading group. From 1996 to 2000 Lyons served as the National Director of the Federal Home Loan Mortgage Corporation's Capital Markets Group. For ten months thereafter, Lyons served as the Executive Vice President for XBond Corporation. At various times Lyons has held Series 7, 24 and 63 securities licenses.
8. In September 2002, Lyons, operating through SV Group, approached a senior managing director at Bear Stearns - where Lyons had previously been employed as a broker - to sell to Bear Stearns a purported "zero coupon bank guarantee note" ("bank guarantee") for $200 million, saying it would be worth $220 million one year after its purchase.
9. During the following four months, Lyons repeatedly contacted Bear Stearns and provided Bear Stearns with documentation describing the purported bank guarantee and the transaction that Lyons claimed he and his associates would coordinate in order for Bear Stearns to obtain a bank guarantee issued by a third party.
10. Lyons had obtained the offering materials and other information that he provided to Bear Stearns from a network of individuals and entities located in Europe. Lyons had entered into an agreement with two of these European entities to act as a so-called "finder," meaning that Lyons was entitled to receive certain compensation each time an individual or entity that he solicited purchased one of the purported bank guarantees.
11. Despite many red flags, including the complex series of transactions supposedly required to obtain one of the bank guarantees, the participation of unknown individuals and entities located overseas, claims of guaranteed ten percent net profit, and despite Lyons' significant training and experience in the financial services industry, Lyons failed to conduct any type of independent inquiry into the purported bank guarantees or into the individuals and entities who claimed that they could furnish Lyons with them. Specifically:
Lyons never sought verification from the purported issuing banks as to whether they had ongoing relationships with the individuals who represented that they could furnish the bank guarantees;
Lyons never sought verification as to whether the third parties who represented that they could furnish the bank guarantees had actually engaged in, and consummated, any of the transactions that they described to Lyons; and
Lyons never performed any general research into the existence or viability of the purported bank guarantees, or into the facts and circumstances associated with the complex series of transactions that were supposedly needed to obtain them.
12. In fact, Lyons had no independent basis for the information that he passed to Bear Stearns. Lyons simply passed on to Bear Stearns information about the purported investments that he had received from third parties.
13. Had Lyons conducted an independent inquiry, he would have discovered that the purported bank guarantees that he was offering and their associated funding and issuing transactions had the hallmarks of a fraudulent prime bank securities scheme.
14. In fact, the investment opportunity that Lyons was offering did not exist.
15. However, rather than undertake efforts to independently verify the legitimacy of the bank guarantees, Lyons opted to remain uninformed.
16. Lyons' efforts to market the bank guarantee offering to Bear Stearns were designed to persuade representatives of Bear Stearns to tender the $200 million payment for the purchase of a purported $220 million bank guarantee. Such a payment by Bear Stearns would have generated a total of approximately $1 million in compensation to SV Group and Lyons.
17. In December 2002, Bear Stearns ultimately rejected the proposed transaction and informed Lyons that the transaction could be fraudulent and suggested that Lyons visit the SEC's webpage on prime bank fraud.
18. Lyons reviewed the SEC website and concluded that the securities and transaction at issue were distinguishable from similar securities offerings that were the subject of past SEC actions. Lyons, however, reached his conclusion without performing any due diligence into the third parties that represented to Lyons that they could furnish the purported bank guarantees.
19. Lyons' review of the SEC website did not deter his marketing efforts. In fact, Lyons continued his efforts to market the purported guarantees, and approached employees of Merrill Lynch, Goldman Sachs, and Chase with the same potential securities transaction that he had previously proposed to Bear Stearns. None of these entities was interested in the transaction and none engaged in any significant discussions with Lyons as to the transaction.
20. Lyons ceased his marketing efforts when the staff of the SEC's Division of Enforcement questioned him about the purported bank guarantees.
21. Lyons was not associated with a registered broker-dealer during the offering period, neither SV Group nor any SV Group-related company was registered with the SEC or the NASD as a broker-dealer or associated with a registered broker-dealer.
22. At no time during the offering period was Lyons associated with a registered broker-dealer.
23. The SEC realleges and incorporates by reference paragraphs 1 through 23 above.
24. Defendant Lyons, directly or indirectly, singly or in concert with others, in the offer and sale of securities, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, has: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or 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/or (c) engaged in transactions, practices, and courses of business which operate or would operate as a fraud or deceit upon purchasers of securities.
25. By reason of the foregoing, Lyons has violated, and unless enjoined, will continue to violate the provisions of Section 17(a) of the Exchange Act [15 U.S.C. § 77(q)(a)].
26. The SEC realleges and incorporates by reference paragraphs 1 through 23 above.
27. Defendant Lyons, by engaging in the conduct described above, directly or indirectly, made use of the mails or means or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of securities, without being registered as a broker or dealer or associated with a registered broker or dealer in accordance with Section 15(b) of the Exchange Act [15 U.S.C. § 78o(b)].
28. By reason of the foregoing, Defendant Lyons violated, and unless enjoined will continue to violate, Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)].
WHEREFORE, Plaintiff SEC, respectfully requests that this Court enter a judgment:
(1) permanently enjoining Defendant Lyons, his agents, servants, employees, attorneys, and all persons in active concert or participation with him who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 17(a) of the Securities Act [15 U.S.C. § 77(q)(a)], and Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)];
(2) imposing civil penalties against Defendant Lyons 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)]; and
(3) granting such other relief as this Court deems just and proper.
Dated: April ____, 2004
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