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IN THE UNITED STATES DISTRICT COURT
COMPLAINT Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against Defendants Richard T. Taylor ("Taylor"), individually and doing business as Transworld Bankers, and Kevin M. Devoto ("Devoto"), individually and doing business as First Fidelity Financial, and Relief Defendant G.R.I. Group, Inc. ("G.R.I."), alleges and states: SUMMARY 1. For the last nine years, Taylor has betrayed the trust and confidence of over 50 of his elderly clients. Taylor conceived and implemented a scheme to fraudulently obtain the possession and use of at least $7 million of his customers' funds by offering FDIC insured 30-month certificates of deposit ("CDs") purportedly issued by NationsBank, Bank of America and Chase Bank. In reality, Taylor did not purchase the promised CDs, but instead, misappropriated his clients' funds. 2. To effectuate his scheme and to broaden his offering, Taylor placed advertisements in national and local newspapers offering FDIC insured CDs, promising returns as high as 9 % per annum, and employed at least two salesmen, including. Devoto, to sell the purported safe and secure 30-month, FDIC-insured CDs. Taylor and Devoto made numerous misrepresentations and omissions concerning, among other things, the use of investor funds, including the transfer of over $100,000 to G.R.I. (a company Taylor controls), the safety of investor funds and the rate of return of the alleged investments. Taylor further lulled investors by making "ponzi" style interest and principal payments and by assuring investors that all payments of principal and interest would be made. Although Taylor made ponzi payments to many investors, Taylor still owes in excess of $1 million in principal and interest to his investors. 3. The Commission, in the interest of protecting the investing public from further unscrupulous and illegal activity, brings this action against Taylor and Devoto, seeking temporary, preliminary and permanent injunctive relief, disgorgement of all illicit profits and benefits Taylor and Devoto received, plus accrued prejudgment interest, and a civil penalty. The Commission also seeks an accounting and other incidental relief against the Taylor, Devoto and G.R.I. and in addition an asset freeze against Taylor and G.R.I. and the appointment of a receiver to take possession of Taylor's and G.R.I.'s assets wherever situated to preserve assets for the benefit of the defendants' victims. PARTIES 4. The Commission is an agency of the United States of America established by section 4(a) of the Exchange Act, 15 U.S.C. §77d(a). 5. Taylor, age 50 and a resident of Spring, Texas, does business as Transworld Bankers and controls G.R.I. as its sole shareholder, director and officer. 6. Devoto, age 39 and a resident of Dallas, Texas, does business as First Fidelity Financial. Devoto is not registered with the Commission and is not associated with a registered broker-dealer. 7. G.R.I. is a Texas corporation with its principal place of business in Spring, Texas, and has its registered office there. G.R.I. is controlled by Taylor and receives funds from him. JURISDICTION AND VENUE 8. This Court has jurisdiction over this action pursuant to sections 20(d) and 22(a) of the Securities Act, 15 U.S.C. §§77t(d) and 77v(a), sections 21(d) and (e) and 27 of the Exchange Act, 15 U.S.C. §§77u(d) and (e) and 78aa, and 28 U.S.C. §§1331 and 1337. Taylor and Devoto, directly or indirectly, singly or in concert, made use of the means or instruments of transportation and communication in, and the means or instrumentalities of interstate commerce or of the mails, in connection with the transactions, acts, practices and courses of business alleged in this Complaint. Venue is proper in the Northern District of Texas because certain of the transactions, acts, practices and courses of business alleged herein took place in the Northern District of Texas. FACTUAL BACKGROUND 9. Since at least 1992, Taylor has sold in excess of $7 million worth of CDs purportedly issued by NationsBank, Bank of America or Chase Bank to over 50 of his elderly investors. Currently, Taylor owes at least ten investors approximately $1 million plus the accrued investment return. Many of these individuals' investments have matured, but Taylor has failed to return to the investors their principal or investment returns. 10. Using the name "Transworld Bankers," Taylor utilized at least two salesmen to sell the bogus Transworld Banker CDs. One of the salesmen, Michael Hill ("Hill") sold, CDs through Transworld Bankers from 1992 until 1998, when he began to operate his own CD scheme. In 1998, Taylor ended his relationship with Hill and began to use Devoto, operating as First Fidelity Financial, to offer and sell the Transworld Bankers CDs. Both Taylor and Devoto placed advertisements in newspapers offering FDIC insured CDs with above current market interest rates. Many of these individuals' Transworld Bankers CDs have matured, but they have not been able to obtain their interest payments due to them or the return of their principal. 11. Since at least 1998, Taylor and Devoto offered potential investors purported 30-month 7% to 9% annual return CDs from NationsBank, Bank of America and Chase Bank. As an example of his fraudulent scheme, at least three investors were told that Taylor was purchasing 30-month Chase CDs for them and that the CDs would pay 7.5% to 9%. In reality, for two of these investors, Taylor purchased 90-day Chase CDs, with himself as trustee, and the CDs paid only a 3% annual return. Taylor cashed-in these Chase CDs at maturity, failed to inform the investors of the liquidation of the CDs, and misappropriated the funds. To cover his fraud, Taylor continued to pay the interest to the two investors as if they actually owned 30-month 7.5% CDs. For the third investor, Taylor purchased a 151-day Chase CD that provided a 6.35% annual return, but he cashed it in after one month, paid a $1500 penalty and deposited the funds in a G.R.I. bank account without notice to, the knowledge of, or authorization from the investor. Taylor also continued to pay this investor interest payments as if he had a 30-month 9% CD. Taylor further concealed his fraud by sending bogus confirmations and account statements on Transworld Bankers letterhead to his investors. Not only do none of these customers own a 30-month Chase CD, but at the time Taylor defrauded his investors, Chase did not offer a 30-month CD paying the interest rates Taylor represented to investors that they were purchasing. 12. Taylor also sold purported to sell NationsBank and Bank of America CDs to the other investors he solicited. These investors were told that their funds would be used to purchase 30-month, FDIC insured, NationsBank and Bank of America CDs. Investors were told to make their checks payable to Transworld Bankers, which they did. After concluding a sale, Devoto mailed the investor checks directly to Taylor. Taylor then sent investors bogus confirmations of their purchases in which Taylor specified the issuing bank, the annual interest rate and the maturity date. Taylor never purchased these NationsBank and Bank of America CDs for investors. Instead, the investor funds were deposited in a Transworld Bankers account and used for unknown purposes. Because Taylor never purchased these NationsBank and Bank of America CDs, he necessarily used investor funds to make interest and principal payments to existing investors. 13. Although the last known sale of a Transworld Bankers CD and the payment of interest occurred in August 2001, Taylor has lulled at least one investor with a statement that his investment was fine and that his interest check should have already arrived. Devoto placed newspaper ads offering above market rate CDs as recently as September 2001. CAUSES OF ACTION Count One (Violations of Sections 5(a) and 5(c) of the Securities Act) 14. The Commission realleges and restates Paragraphs 1 through 13 of this Complaint and incorporates the same by reference as if set forth herein verbatim. 15. Taylor, individually and doing business as Transworld Bankers, and Devoto, individually and doing business as First Fidelity Financial, directly or indirectly, singly or in concert with others, offered to sell and are offering to sell, sold and are selling and delivered and are delivering after sale, certain securities, and have been and are, directly and indirectly, (a) making use of the means and instruments of transportation and communication in interstate commerce and of the mails to sell securities, through the use of written contracts, offering documents and otherwise, (b) carrying and causing to be carried through the mails and in interstate commerce by the means and instruments of transportation, such securities for the purpose of sale and for delivery after sale and (c) making use of the means or instruments of transportation and communication in interstate commerce and of the mails to offer to sell such securities. 16. As described in Paragraphs 1 through 13, the securities Taylor, individually and doing business as Transworld Bankers, and Devoto, individually and doing business as First Fidelity Financial, have been offering and selling to the public were offered and sold through a general solicitation of investors. 17. No one caused a registration statement to be filed with the Commission and there is no registration in effect with respect to these securities. 18. By reason of the foregoing, Taylor, individually and doing business as Transworld Bankers, and Devoto, individually and doing business as First Fidelity Financial, 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). Count Two (Violations of Section 17(a) of the Securities Act) 19. The Commission realleges and restates Paragraphs 1 through 13 of this Complaint and incorporates the same by reference as if set forth herein verbatim. 20. Taylor, individually and doing business as Transworld Bankers, 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 (c) engaged in transactions, practices or courses of business which operate or would operate as a fraud or deceit. 21. As part of and in furtherance of this scheme, Taylor, individually and doing business as Transworld Bankers, directly and indirectly, prepared, disseminated and used contracts, written offering documents, promotional materials, investor and other correspondence, and oral presentations that contained untrue statements of material fact and that 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, including, but not limited to, those statements and omissions set forth in Paragraphs 1 through 13. 22. Taylor, individually and doing business as Transworld Bankers, made the above-referenced misrepresentations and omissions knowingly or with recklessness regarding the truth. 23. Taylor, individually and doing business as Transworld Bankers, was also negligent in his actions regarding the representations and omissions alleged herein. 24. By reason of the foregoing, Taylor, individually and doing business as Transworld Bankers, violated, and unless enjoined, will continue to violate section 17(a) of the Securities Act, 15 U.S.C. §77q(a). Count Three (Violation of Section 10(b) of the Exchange Act and Rule 10b-5) 25. The Commission realleges and restates Paragraphs 1 through 13 of this Complaint and incorporates the same by reference as if set forth herein verbatim. 26. Taylor, individually and doing business as Transworld Bankers, directly or indirectly, singly or in concert with others, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails (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 operate as a fraud and deceit upon purchasers, prospective purchasers and other persons. 27. As a part of and in furtherance of his scheme, Taylor, individually and doing business as Transworld Bankers, directly and indirectly, prepared, disseminated and used contracts, written offering documents, promotional materials, investor and other correspondence and oral presentations that contained untrue statements of material facts and misrepresentations of material facts and that 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, including, but not limited to, those set forth in Paragraphs 1 through 13 above. 28. Taylor, individually and doing business as Transworld Bankers, made the above-referenced misrepresentations and omissions knowingly or with recklessness regarding the truth. 29. By reason of the foregoing, Taylor, individually and doing business as Transworld Bankers, violated and, unless enjoined, will continue to violate the provisions 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. Count Four (Violations of Section 15(a) of the Exchange Act) 30. The Commission realleges and restates Paragraphs 1 through 13 of this Complaint and incorporates the same by reference as if set forth herein verbatim. 31. Devoto has been in the business of effecting transactions in securities for the accounts of others. 32. Devoto made use of the mails and of the means and instrumentalities of interstate commerce to effect transactions in and to induce or attempt to induce the purchase of those securities. 33. Devoto was not and is not registered with the Commission as a broker or dealer, as required by section 15(a) of the Exchange Act, 15 U.S.C. §78o(a). 34. By reason of the foregoing, Devoto has violated and, unless enjoined, will continue to violate section 15(a) of the Exchange Act, 15 U.S.C. §78o(a). Count Five (Claim Against G.R.I. as Custodian of Investor Funds) 35. The Commission realleges and restates Paragraphs 1 through 13 of this Complaint and incorporates the same by reference as if set forth herein verbatim. 36. G.R.I. received funds and property that are or are traceable to the proceeds of the unlawful activities of Taylor, individually and doing business as Transworld Bankers, as alleged in Paragraphs 1 through 13 above. 37. G.R.I. obtained the funds and property under circumstances in which it is not just, equitable or conscionable for it to retain the funds and property. 38. As a consequence, G.R.I. has been unjustly enriched and ought to be required to account for these funds and to turn over these funds for the benefit of the defrauded investors. PRAYER FOR RELIEF WHEREFORE, Plaintiff Securities and Exchange Commission prays that the Court issue Orders providing for relief as follows: (a) Temporarily restraining and preliminarily and permanently enjoining Defendant Richard T. Taylor, individually and doing business as Transworld Bankers, from violating sections 5(a) and (c) and 17(a) of the Securities Act of 1933, 15 U.S.C. §77e(a) and (c), section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. §240.10b-5; (b) Temporarily restraining and preliminarily and permanently enjoining Defendant Kevin M. Devoto, individually and doing business as First Fidelity Financial, from violating sections 5(a) and (c) of the Securities Act of 1933, 15 U.S.C. §77e(a) and (c), and section 15(a) of the Securities Exchange Act of 1934, 15 U.S.C. §78o(a); (c) Ordering Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Kevin M. Devoto, individually and doing business as First Fidelity Financial, to disgorge an amount equal to the funds and benefits they obtained illegally as a result of the violations alleged in this Complaint, plus prejudgment interest on that amount; (d) Awarding civil penalties against Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Kevin M. Devoto, individually and doing business as First Fidelity Financial, under section 20(d) of the Securities Act of 1933, 15 U.S.C. §77t(d), and under section 21(d)(3), 15 U.S.C. §78u(d)(3); (e) Ordering Relief Defendant G.R.I. Group, Inc., to turn over all assets it received or traceable to assets received from Defendant Richard T. Taylor, individually and doing business as Transworld Bankers, and obtained by him as a result of his fraud; (f) Ordering a freeze of the assets Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Relief Defendant G.R.I. Group, Inc., directing that all financial or depository institutions comply with the Order and requiring credit bureaus to transmit a copy of the Order to known creditors; (g) Ordering Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Kevin M. Devoto, individually and doing business as First Fidelity Financial, and Relief Defendant G.R.I. Group, Inc., file with the Court and serve upon Plaintiff Securities and Exchange Commission, no later than ten (10) calendar days after entry of the freeze order, an accounting, under oath, detailing all of their assets and all funds or other assets received from investors and from one another; (h) Ordering that Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Kevin M. Devoto, individually and doing business as First Fidelity Financial, and Relief Defendant G.R.I. Group, Inc., be restrained and enjoined from destroying, removing, mutilating, altering, concealing or disposing of, in any manner, any of their books and records or documents relating to the matters set forth in this Complaint, or the books and records and such documents of any entities under their control, until further order of the Court; (i) Ordering the appointment of a receiver pendente lite for Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Kevin M. Devoto, individually and doing business as First Fidelity Financial, and Relief Defendant G.R.I. Group, Inc., for the benefit of investors, to marshal, conserve, protect and hold funds and assets obtained by Defendants Richard T. Taylor, individually and doing business as Transworld Bankers, and Kevin M. Devoto, individually and doing business as First Fidelity Financial, and Relief Defendant G.R.I. Group, Inc., and their agents, co-conspirators and others involved in this scheme to defraud, wherever such assets may be found, or, with the approval of the Court, dispose of any wasting asset; (j) Ordering that the parties be permitted to commence discovery immediately, and that notice periods be shortened to permit the parties to require answers to interrogatories, production of documents and/or the deposition of any party, party-representative or other person, on seventy-two (72) hours notice by facsimile or personal service; (k) Ordering such other and further relief as the Court may deem just and proper.
http://www.sec.gov/litigation/complaints/complr17288.htm
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