U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21196 / September 3, 2009
SEC v. Jeffrey L. Mowen et al., Civil Action No. 2:09CV0786 (D. Utah., filed September 2, 2009)
SEC Charges Eight Individuals with Participating in $41 Million Offering Fraud Based in Utah and Colorado
The Securities and Exchange Commission (Commission) announced yesterday that it filed charges against eight individuals who participated in the operation of a multi-million dollar offering fraud based in Utah and Colorado.
The Commission's civil injunctive complaint, filed in the U.S. District Court for the District of Utah on September 2, 2009, alleges that between January 2007 and July 2008, Thomas R. Fry and Fry's promoters, Bevan J. Wilde, Gary W. Hansen, Michael G. Butcher, James B. Mooring, David G. Bartholomew, and Michael W. Averett (collectively, the "Promoters"), raised approximately $41 million from the unregistered offer and sale of high-yield promissory notes to over 150 investors in several states, over half of which was lost to investors. According to the complaint, around $18 million of the funds raised by Fry and the Promoters was funneled by Fry into a Ponzi scheme run by Jeffrey L. Mowen, a convicted felon and securities law recidivist, who misappropriated over $8 million of these funds. The complaint also alleges that Fry and the Promoters knowingly or recklessly distributed private placement memoranda to investors that misrepresented the level of their due diligence and falsely stated that all the funds were being used to make collateralized domestic real estate loans and domestic small business loans. The complaint further alleges that, Fry, who dealt directly with Mowen, committed fraud by failing to disclose Mowen's involvement and criminal history to the Promoters and investors. According to the complaint, Fry and the Promoters also committed registration violations with respect to the securities offerings and their status as brokers.
The Commission's complaint alleges that, as a result of their conduct, the defendants violated, and unless enjoined, will continue to violate, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also alleges that Fry and the Promoters violated, and unless enjoined, will continue to violate Sections 5(a) and 5(c) the Securities Act and Section 15(a) of the Exchange Act. As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, disgorgement, pre-judgment interest, and third tier civil money penalties. The Commission has also provided assistance to the United States Attorney's Office for the District of Utah, which has filed criminal charges against Mowen relating to the Ponzi scheme.