U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21100 / June 23, 2009
Securities and Exchange Commission v. Gary S. Becker, Gregory S. Schaefer, and Dillon Scott Securities, Inc., Civil Action No. 09-CV-5707 (SAS)(S.D.N.Y. June 22, 2009)
On June 22, the Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of New York against Gary S. Becker, Gregory S. Schaefer, and the brokerage firm they controlled, Dillon Scott Securities, Inc. The Commission alleges that the defendants engaged in a fraudulent offering of securities of Gold Rush Technologies, Inc., Dillon Scott's parent company.
The SEC's complaint alleges that from January 2001 through July 2007, the defendants raised at least $1.3 million from 29 investors through three unregistered offerings of Gold Rush. Becker and Schaefer, in offering memoranda, direct solicitations, and solicitations by two of their salespersons, represented that the money raised would be used to form and expand a brokerage firm, Dillon Scott. Instead, Becker and Schaefer diverted about 79% of the offering proceeds to enrich themselves and others. Becker and Schaefer used Gold Rush's corporate ATM cards over 4,200 times to withdraw approximately $600,000. Becker and Schaefer also used $69,000 in investor funds to pay various personal expenses including meals, groceries, and domestic and international travel. They also wrote checks to themselves and others in amounts totaling approximately $361,000. The victims of the scheme include at least 10 individuals who are sixty years of age or older and at least 10 individuals who were brokerage customers of Dillon Scott.
The complaint further alleges that Dillon Scott, aided and abetted by Becker and Schaefer, did not disclose Becker's control over Dillon Scott in the firm's broker-dealer regulatory filings; permitted Becker and another individual to effect securities transactions when they were not registered with FINRA; and did not keep and maintain a current Form U-4 or other questionnaire or application for employment for Becker and the salesperson.
The complaint charges Becker, Schaefer, and Dillon Scott with violating the general antifraud and registration provisions of the securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. It also charges Dillon Scott with violating Sections 15(b)(7), 15(c)(1), and 17(a) of the Exchange Act and Rules 10b-3, 15b3-1, 15b7-1, and 17a-3(a)(12). The complaint also alleges that Becker and Schaefer aided and abetted Dillon Scott's violations.
The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against all defendants, and penny stock bars against Becker and Schaefer.