U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20807 / November 13, 2008
Securities and Exchange Commission v. Biltmore Financial Group, Inc., J. V. Huffman, Jr., Defendants, and Gilda Bolick Huffman, Relief Defendant, Civil Action No. 5:08cv136 (W.D.N.C.)
The Securities and Exchange Commission ("Commission") announced that on November 12, 2008, it filed a Complaint For Injunctive Relief ("Complaint") in the United States District Court for the Western District of North Carolina, alleging an unregistered offering of securities and fraudulent conduct by defendants J. V. Huffman, Jr. ("Huffman") of Claremont, North Carolina, and Biltmore Financial Group, Inc. ("Biltmore"), a North Carolina corporation controlled by Huffman. The Complaint also seeks to recover property transferred to relief defendant Gilda Bolick Huffman ("G. Huffman"), Huffman's wife. The Honorable Richard L. Voorhees, United States District Judge for the Western District of North Carolina, issued orders freezing the assets of the defendants and relief defendants, appointing a receiver for the defendants, and permanently enjoining the defendants from future violations of the registration and antifraud provisions of the federal securities laws.
The Complaint alleges that Huffman, operating through Biltmore, conducted a Ponzi scheme since 1991, and raised at least $25 million from more than 500 investors in North Carolina and several other states. According to the Complaint, investors made their investments pursuant to an agreement which promised profits that would fluctuate at market rates and which were guaranteed "never to drop below 0%." The Complaint alleges that Huffman initially told investors that Biltmore operated like a mutual fund. After September 11, 2001, in order to assure investors that their investments would not be affected by the volatility of the stock market, Huffman represented that Biltmore pooled investors' funds to purchase and sell mortgages for a profit. According to the Complaint, Biltmore's offering materials, which Huffman provided to investors and prospective investors, also indicated that the investment was protected against loss. The Complaint alleges that Huffman failed to invest client funds as he represented, and used new investor funds to pay profits to earlier investors. The Complaint also alleges that Huffman spent investor funds to subsidize his lavish lifestyle. Further, the Complaint alleges that G. Huffman received benefits from the fraudulent scheme, and was thereby unjustly enriched.
The Complaint alleges that the defendants have violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks: (i) permanent injunctions against future violations; (ii) an order requiring disgorgement of ill-gotten gains or unjust enrichment with prejudgment interest; and (iii) imposition of civil penalties.
The Commission acknowledges the assistance of the North Carolina Secretary of State's Securities Division, which conducted a parallel investigation of this matter and has arrested Huffman for criminal violations of the North Carolina Securities Act.