U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21035 / May 11, 2009
Securities and Exchange Commission v. Kiselak Capital Group, LLC et al, Civ. Action No. 4:09-cv-256-A (United States District Court for the Northern District of Texas)
SEC Halts On-Going Multi-Million Dollar Fraud Involving former Dallas Cowboy Michael J. Kiselak and Jeffrey J. Sykes, and the Companies They Control
On May 11, 2009, the Commission filed an emergency action in the United States District Court for the Northern District of Texas (Fort Worth Division) to halt an on-going multi-million dollar fraud involving investments in Kiselak Capital Group, LLC ("KCG"), a Westlake, Texas-based investment company and Gemstar Capital Group, Inc. ("Gemstar"), a Redlands, California-based venture capital company. The Commission's complaint alleges that from approximately June 2007 to the present, Defendant Michael J. Kiselak (a former Dallas Cowboys football player), solicited approximately $24 million from 14 investors on behalf of KCG by promising inflated returns and misrepresenting how investor funds would be invested. The complaint also alleges that Kiselak failed to disclose to investors that KCG took a 35% performance fee on all trading profits. The complaint further alleges that Kiselak told investors that KCG made a 2.25% per month profit trading treasury bills; instead, Kiselak invested over 95% of the investor funds in Gemstar.
According to the complaint, KCG and Gemstar could not account for all of the investor funds. Specifically, the Commissions alleges that KCG provided to the SEC a brokerage statement purportedly showing that Gemstar, as of March 31, 2009, had over $23 million in segregated accounts for the benefit of KCG. But the complaint alleges that Gemstar, through its president, Defendant Jeffrey J. Sykes, produced this fabricated document to KCG. According to the complaint, as of March 31, 2009, Gemstar had only $20 million in its brokerage accounts — exactly $3 million less than the amount represented in the letter Sykes provided to Kiselak — and the funds were not segregated for the benefit of KCG investors. According to the SEC's complaint, as of May 7, 2009, the account had approximately $19 million.
U.S. District Judge John McBryde granted a temporary restraining order and asset freeze against the Defendants, and other emergency relief.
The complaint alleges that Defendants Kiselak Capital Group, LLC, Gemstar Capital Group, Inc., Michael J. Kiselak, and Jeffrey J. Sykes violated the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief granted by the Court, the Commission seeks the appointment of a receiver to take control of assets held by KCG and Gemstar, permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil money penalties against the Defendants.