U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21594 / July 19, 2010
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)
The Securities and Exchange Commission announced that on July 12, 2010, the Honorable Shira A. Scheindlin, United States District Judge for the Southern District of New York, entered a final judgment by default against defendants Gary S. Becker, Gregory S. Schaefer, and the brokerage firm they controlled, Dillon Scott Securities, for their participation in three fraudulent offerings of Gold Rush Technologies, Inc., Dillon Scott’s parent company. The Court issued an order enjoining defendants from future violations of the antifraud as well as broker-dealer and securities registration provisions of the federal securities laws. The Court further ordered defendants to disgorge $1,306,950 plus prejudgment interest of $218,770.23, to be paid joint and severally, and also ordered civil penalties against each Becker and Schaefer in the amount of $1,306,950 as well as permanent penny stock bars against them.
The SEC's complaint, filed on June 22, 2009, alleged 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. They also wrote checks to themselves and others in amounts totaling approximately $361,000. In addition, Becker and Schaefer also used investor funds to pay various personal expenses including meals, groceries, and domestic and international travel. 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.
As a result of these activities, Becker, Schaefer, and Dillon Scott violated 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. Dillon Scott also violated 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), and Becker and Schaefer aided and abetted these violations.
For more information, see Litigation Release No. 21100 (June 23, 2009).