U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20150 / June 12, 2007
Securities and Exchange Commission v. Security Asset Capital Corporation, et al., Civil Action No. 04-0683 (E.D. Pa.), filed February 18, 2004
Court Enters Default Judgments Against Darrell G. Musick, Richard E. Wensel, Arthur B. Carlson, III, Gary J. Spirk, and Richard C. Wallace and Orders the Payment of Over $2.5 Million
The Securities and Exchange Commission announced that on June 12, 2007, a Pennsylvania District Court entered default judgments against Darrell G. Musick ("Musick"), Richard E. Wensel ("Wensel"), Arthur B. Carlson, III ("Carlson"), Gary J. Spirk ("Spirk"), and Richard C. Wallace ("Wallace"), defendants in an action that was filed by the Commission in February 2004. In total, the Court ordered these defendants to pay in excess of $2.5 million in disgorgement, prejudgment interest, and civil penalties; and each has been permanently enjoined from future violations of the charged provisions of the federal securities laws. On the same date, at the Commission's request, the District Court also ordered the dismissal of the case against Apacor Financial, Inc. ("Apacor"), Continental Capital Group, Ltd., and Secure Investments, Inc., because each of these entities is defunct; ordered the dismissal of the case against Security Asset Capital Corporation ("Security Asset"), a bankruptcy debtor with liabilities that overwhelmingly exceed its assets and is no longer doing business; and also ordered the case dismissed against defendant David S. Walton, who is quite ill and unable to defend the action.
The Commission filed its complaint against these defendants in February 2004, alleging that defendants made material misrepresentations and omissions in the offering of nine-month promissory notes, issued by Security Asset and/or by Apacor, whereby investors were promised secure investments with 12% (or more) annual returns, but instead lost their money. The alleged misrepresentations and omissions related to, among other things, the use of the offering proceeds and the risks associated with the investment. Specifically, the complaint alleged that, contrary to representations, at the time of the offerings each of these issuers was in dire financial circumstances, and the offering proceeds were used, not for the purchase of productive assets as promised, but, largely, to pay commissions, officers' salaries and personal expenses, and to pay interest to prior investors. The complaint further alleged that no registration statement was in effect as to these promissory notes; nor were they exempt from registration, and that, in connection with the charged conduct, Wensel, Carlson, and Spirk acted as unregistered broker-dealers.
The Court's Final Judgments enjoined Musick, Wensel, Carlson, Spirk, and Wallace from future violations of the antifraud provisions, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, as well as the securities registration provisions, Sections 5(a) and 5(c) of the Securities Act. In addition, defendants Wensel, Carlson, and Spirk were enjoined from future violations of the broker-dealer registration provisions, Section 15(a)(1) of the Exchange Act. Musick was ordered to pay disgorgement of $100,026, prejudgment interest of $47,387, and a civil penalty of $110,000; Wensel was ordered to pay disgorgement of $130,642, prejudgment interest of $61,891, and a civil penalty of $110,000; Carlson was ordered to pay disgorgement of $124,169, prejudgment interest of $58,824, and a civil penalty of $120,000; and Spirk was ordered to pay disgorgement of $1,104,016, prejudgment interest of $523,020, and a civil penalty of $120,000. No monetary relief was ordered against Wallace, in light of his criminal conviction for, in addition to other charges, the same conduct as was charged in the Commission's complaint, and sentencing to, among other sanctions, 37 months in prison and restitution orders totaling $2,117,496.
For further information, please see Litigation Release Number 18580 (February 18, 2004).