U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21868 / March 1, 2010

SEC v. Douglas F. Vaughan, The Vaughan Company, Realtors, Inc., and Vaughan Capital, LLC

United States District Court for the District of New Mexico, Civil Action No. 1:10-cv-00263-MCA-WPL

A federal grand jury in Albuquerque, New Mexico has indicted former real estate magnate, Douglas F. Vaughan, for operating an approximately $75 million Ponzi scheme and for knowingly providing false documents to the SEC in the course of its investigation into Vaughan's conduct in the fall of 2009.

The SEC filed a civil complaint against Vaughan and two of his entities on March 23, 2010, alleging violations of the antifraud and securities registration provisions of the federal securities laws. See Release No. 2010-43. The Honorable M. Christina Armijo for the U.S. District Court for the District of New Mexico granted the SEC's request for a temporary restraining order and asset freeze against Vaughan and his companies at that time. Judge Armijo subsequently entered a preliminary injunction, which remains in force. The SEC's action is pending.

The federal criminal indictment, styled United States v. Douglas F. Vaughan, No. 11-cr-404, was filed in the United States District Court for the District of New Mexico on February 24, 2011 and unsealed on February 25. It alleges that, between 1993 and 2010, Vaughan raised approximately $75 million from investors through the issuance of promissory notes from his now-defunct real estate company, The Vaughan Company Realtors ("Vaughan Company") and through the sale of interests in a separate entity called Vaughan Capital, LLC ("Vaughan Capital"). In both instances, the indictment alleges, Vaughan falsely told investors, among other things, that their funds would be used for real estate-related investments, when, in fact, he used their money to make principal and interest payments to earlier investors, to cover Vaughan Company's mounting operating losses, and to support his own extravagant lifestyle, which included a mansion overlooking a golf course, a Ferrari, and frequent travel to Las Vegas, Nevada.

With respect to the promissory note program, the indictment further alleges that Vaughan misrepresented the safety of the program by telling investors that outstanding promissory notes would never exceed a sum certain (which was never higher than $2.5 million) and that Vaughan Company's obligations on the promissory notes were backed by Vaughan's "personal guarantee." In fact, according to the indictment, the aggregate principal balance on outstanding notes grew from approximately $24.4 million at the end of 2004 to approximately $75 million at the beginning of 2010, and Vaughan himself had a negative net worth, as reflected by his bankruptcy filing on or about February 22, 2010. Based on the foregoing, the indictment charges Vaughan with three counts of wire fraud in violation of 18 U.S.C. §§ 1343 and 2; 17 counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 2; and five counts of money laundering in violation of 18 U.S.C. §§1957 and 2.

The indictment also charges Vaughan with five counts of knowingly making false statements to the SEC, in violation of 18 U.S.C. § 1001, during the SEC's investigation into Vaughan's conduct in late 2009. Specifically, the indictment charges that, between September 21 and December 4, 2009, Vaughan made written submissions to the SEC in which he falsely represented, among other things, that Vaughan Company made principal and interest payments to note investors with the proceeds from real estate investments; that Vaughan had a net worth in excess of $12.5 million; that Vaughan Company's and Vaughan's financial condition were sufficiently sound to guarantee repayment of all promissory notes; and that Vaughan Capital had not invested in any "unrelated ventures."