U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21121 / July 9, 2009
Securities and Exchange Commission v. James B. Duncan; Hendrix M. Montecastro; Maurice E. McLeod; Pacific Wealth Management, LLC; Stonewood Consulting, Inc.; and Total Return Fund, LLC, Case No. CV 08-01323 VAP (OPx) (C.D. Cal.)
FEDERAL COURT GRANTS SUMMARY JUDGMENT AND ORDERS PRINCIPALS OF OFFERING FRAUD TO PAY DISGORGEMENT AND CIVIL PENALTIES OF OVER $30 MILLION
On July 6, 2009, the Honorable Virginia A. Phillips, United States District Judge, Central District of California, granted the Commission's motion for (i) summary judgment against defendants James B. Duncan ("Duncan") and Hendrix M. Montecastro ("Montecastro"); (ii) remedies against defendant Maurice E. McLeod ("McLeod"); and (iii) default judgment against defendants Pacific Wealth Management, LLC ("PWM"); Stonewood Consulting, Inc. ("Stonewood"); and Total Return Fund, LLC ("TRF"). Duncan, Montecastro, and McLeod used PWM, Stonewood, and TRF to raise more than $29 million from investors in several affinity groups, including the Southern California Filipino community, fellow church members, and military personnel. The Court permanently enjoined Duncan, Montecastro, PWM, Stonewood, and TRF from future violations of the registration and antifraud provisions of the federal securities laws, as it had previously done with McLeod on August 28, 2008. The Court also ordered Duncan to pay disgorgement of $29,498,679 plus prejudgment interest, imposed joint and several liability on Montecastro for $27,515,421 of this amount, ordered McLeod to pay $469,223 in disgorgement plus prejudgment interest, and imposed civil penalties of $130,000 against each of Duncan, Montecastro, and McLeod.
In its Complaint, filed February 27, 2008, the Commission alleged that Duncan, Montecastro, and McLeod, operating through Murrieta, California-based PWM and Stonewood, promised investors "financial freedom" within three years in exchange for control over their finances. The defendants offered investors securities in the form of investment contracts to purchase and maintain investment homes on behalf of investors. The Complaint further alleged that Duncan conducted a separate offering of preferred membership units in Total Return Fund, LLC, and that the proceeds raised in both offerings were commingled and used to run a Ponzi-like scheme that fell apart in late 2006.
Following a hearing on July 6, 2009, Judge Phillips granted the Commission's motion as to all of its claims against each defendant. In her 43-page order granting summary judgment, Judge Phillips found that the defendants "represented that they were a 'Christian organization.' In fact, Duncan and Montecastro were using investor funds for regular sprees to Las Vegas. An investor would consider it important to know that the principals were misrepresenting their beliefs and not using investor funds as represented, but rather to fund a lavish lifestyle which meant there was little likelihood that investors would receive a reasonable return, or any return, on their investments." Judge Phillips also found that Duncan used a "complex web of transactions" to obscure his involvement, which was "clear evidence of his intent to deceive."
For additional information, please see Litigation Release No. 20469 (February 27, 2008).