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U.S. Securities and Exchange Commission

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21813 / January 14, 2011

SEC v. Lowell Gene “Bob” Hancher, Commerce Street Venture Group, Inc., Edward T. Whelan and Grace Holdings, Inc., 5:11-cv-04005 (N.D. Iowa).

SEC CHARGES “BOB” HANCHER AND HIS ASSOCIATES WITH MISAPPROPRIATION AND TWO OTHER FRAUDULENT SCHEMES

On January 13, 2011, the Securities and Exchange Commission filed a civil injunctive action in the District Court for the Northern District of Iowa charging Lowell Gene “Bob” Hancher, Commerce Street Venture Group, Inc., Edward T. Whelan and Grace Holdings, Inc. with engaging in three separate fraudulent schemes in violation of the antifraud and other provisions of the federal securities laws.

The Commission’s complaint alleges that between April 2005 and November 2007, Hancher, working through his company Commerce Street, raised more than $1.8 million from at least 60 investors in connection with a fraudulent stock offering for Scott Contracting, Inc., a Colorado construction company. Hancher told different investors at least four inconsistent lies about how their money would be invested and promised them outsized returns of 50% after Scott Contracting became a public company. In reality, Hancher and Commerce Street simply misappropriated the money they raised for Scott Contracting to pay personal and business expenses.

In a separate scheme between December 2007 and February 2008, the complaint alleges that Hancher directed Whelan and others to place at least 18 manipulative matched orders for more than 60,000 shares of LMWW Holdings, Inc., a company controlled by Hancher, in order to prop up its stock price and increase its trading volume. According to the complaint, Whelan personally placed at least two of these matched orders in a brokerage account in the name of his company, Grace Holdings, Inc.

Finally, the Commission’s complaint alleges that in a third scheme between September 2008 and January 2010, Hancher abused his position as a director and audit committee member at Cycle Country Accessories Corporation, an Iowa manufacturer of accessories for all-terrain vehicles and golf carts, to convince the company to give the Defendants $620,000 under the guise of taking the company private through a stock buyback. Instead of using the funds as promised, however, the complaint alleges that Hancher and Whelan purchased just a small amount of Cycle Country stock and misappropriated $507,500 and $16,187, respectively. To cover-up the misappropriations, Hancher created fake documents and lied to Cycle Country’s external auditor. The misappropriations and Hancher’s subsequent lies, in turn, caused Cycle Country to incorporate the false information into its books and records and public filings with the Commission.

Without admitting or denying the Commission’s allegations, the Defendants have agreed to settle this matter as follows:

  • Hancher has consented to an order that would permanently enjoin him from violating or aiding and abetting violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(5) and 15(a)(1) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13, 13b2-1 and 13b2-2 thereunder and require him to pay disgorgement plus prejudgment interest of $2,988,405 and a civil penalty of $130,000. Hancher has also consented to bars from serving as an officer or director of any public company and participating in a penny stock offering.
     
  • Commerce Street has consented to an order that would permanently enjoin it from violating Section 17(a) of the Securities Act, Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder.
     
  • Whelan has consented to an order that would permanently enjoin him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and require him to pay disgorgement plus prejudgment interest of $17,340 and a civil penalty of $20,000. Whelan has also consented to a three year bar from participating in a penny stock offering.
     
  • Grace Holdings has consented to an order that would permanently enjoin it from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

 

 

http://www.sec.gov/litigation/litreleases/2011/lr21813.htm


Modified: 01/14/2011