U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20254 / August 24, 2007
SEC v. Brian N. Hollnagel and BCI Aircraft Leasing, Inc., Civil Action No. 07 C 4538 (N.D. Ill.)(Bucklo, J.)
The Securities and Exchange Commission ("Commission") announced that on August 22, 2007, after a two-day evidentiary hearing, the Honorable Elaine E. Bucklo of the United States District Court for the Northern District of Illinois issued a preliminary injunction against Brian N. Hollnagel ("Hollnagel") and BCI Aircraft Leasing, Inc. ("BCI"), enjoining Hollnagel and BCI from further violations of the antifraud provisions of the federal securities laws, in addition to other relief.
Previously, on August 13, 2007, the Commission filed a civil injunctive complaint alleging that Hollnagel and BCI, from 1999 through 2006, raised at least $82 million from approximately 120 investors through the fraudulent offer and sale of membership shares of Limited Liability Corporations ("LLCs") controlled and managed by BCI. According to the complaint, Hollnagel, a resident of Chicago, Illinois, and BCI, headquartered in Chicago, Illinois, told investors that they would use investor funds to purchase specifically identified commercial aircraft for the LLCs and, in turn, lease the aircraft to commercial airlines. According to the complaint, investors were told they would receive part of the lease revenue from the particular aircraft, in the form of regular monthly payments, as their return. The complaint further alleged that the Defendants also told investors that if an aircraft owned by an LLC was sold, investors were entitled to half of all proceeds from the sale above and beyond their capital contribution. In reality, according to the complaint, Defendants operated a massive Ponzi scheme. In addition, the complaint alleged that, in 2007, Defendants continued their scheme by fraudulently repurchasing investors' interests through materially misleading statements. Finally, the complaint alleges that, as a result of their conduct, Hollnagel and BCI violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
In its Memorandum and Order, the Court found that the Commission had satisfied its burden of proof and was entitled to a preliminary injunction. The Court further found, among other things:
As a result, the Court issued a preliminary injunction against Hollnagel and BCI enjoining them from further violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Court declined, however, to grant the Commission's request for an asset freeze or the appointment of a receiver at this time to give BCI and Hollnagel the opportunity to fulfill their promise to pay investors within 60 days the $48 million that is due to them. The Court further provided that, among other things:
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