U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20482 / March 7, 2008
SEC v. Enterprise Trust Company, et al, Case No. 08 cv 1260 (N. D. Ill., filed March 3, 2008)
The Securities and Exchange Commission announced that on March 3, 2008, the Honorable Matthew Kennelly of the United States District Court for the Northern District of Illinois, Eastern Division issued a Temporary Restraining Order (TRO) against Enterprise Trust Company (Enterprise), its President, John H. Lohmeier (Lohmeier), and its Vice President, Rebecca Townsend (Townsend), and an Asset Freeze Order against Enterprise and Lohmeier. The TRO, among other things, temporarily enjoined Enterprise, Lohmeier and Townsend from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Asset Freeze Order froze the assets of Enterprise and Lohmeier. The Defendants consented to the issuance of both Orders. In addition, on March 5, 2008, Judge James B. Zagel entered an order appointing a receiver over Enterprise.
The Commission's complaint, filed on March 3, 2008, alleges, among other things, that Defendants Enterprise, Lohmeier and Townsend fraudulently induced hundreds of customers of Advisory Financial Consultants ("AFC"), a registered broker-dealer, to transfer custody of approximately $49 million in mutual funds to Enterprise. The complaint further alleges that unbeknownst to and without the authorization of the customers, Defendants Enterprise, Lohmeier and Townsend placed the AFC customers' mutual funds into margin and other accounts where the AFC customers' securities served as collateral for leveraged margin trading, including options trading and short selling, that was intended to benefit Enterprise's principals, Lohmeier and Townsend, and other Enterprise customers. This margin trading was not intended to and did not benefit the AFC customers. The complaint further alleges that on February 13, 2008, more that $8 million of the AFC customers' mutual funds were sold without the AFC customers' knowledge or approval to cover Enterprise's margin debt. The Commission alleges that Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and that Lohmeier aided and abetted, and, as a control person of Enterprise, is also jointly and severally liable for, Enterprise's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In addition to the emergency relief already obtained, the complaint seeks, among other things, preliminary and permanent injunctions, disgorgement of ill-gotten gains, and the imposition of civil penalties against Enterprise, Lohmeier and Townsend. The Commission thanks the San Francisco District Office of the Financial Industry Regulatory Authority for its assistance in this matter.