U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21878 / March 8, 2011
Securities and Exchange Commission v. Joseph A. Dawson, Civil Action No. 1:11-cv-01615 (N.D. Ill. March 8, 2011)
SEC CHARGES JOSEPH A. DAWSON IN $3.8 MILLION OFFERING FRAUD AND WITH INSIDER TRADING
The Securities and Exchange Commission announced that on March 8, 2011, it filed a civil injunctive action in the United States District Court for the Northern District of Illinois against Joseph A. Dawson, a resident of Fox Lake, Illinois, and the president and owner of Dawson Trading, LLC. Dawson purportedly operated Dawson Trading as a pooled investment vehicle to invest in securities including, stocks, bonds, commodities, currencies, and options for family and friends. The SEC alleges that Dawson used Dawson Trading to perpetrate a fraudulent offering scheme through which he raised approximately $3.8 million. The SEC further alleges that Dawson, after misappropriating confidential information from a family member regarding a pending acquisition of SPSS Inc. by International Business Machines Corporation (“IBM”)¸ caused Dawson Trading to purchase call options of SPSS, reaping profits of $437,770.
The complaint alleges that from October 2004 through December 2009, Dawson used Dawson Trading to perpetrate a fraudulent offering scheme through which he raised approximately $3.8 million from 31 investors. Dawson offered investors promissory notes which purportedly provided a guaranteed interest rate, generally 5% compounded quarterly, plus a certain percentage of profits made with the investor’s funds. Contrary to the representations Dawson made to investors, instead of investing the $3.8 million in safe investments, Dawson misappropriated approximately $2.1 million of investors’ monies for his own personal expenses and purposes, and lost approximately $945,000 from trading securities. Despite having never invested the funds or losing the funds that were invested, Dawson provided false quarterly account statements to investors which showed significant returns. In addition, when investors redeemed their investments, Dawson, in the nature of a Ponzi scheme, paid them with other investors’ funds based upon the inflated returns reflected in the previously issued false account statements.
The SEC’s complaint further alleges that between June 4, 2009 and July 22, 2009, Dawson caused Dawson Trading to purchase call options of SPSS in advance of a July 28, 2009 announcement of an acquisition of SPSS by IBM, after learning from a family member and close friend and neighbor of a then-current officer of SPSS, that SPSS would be acquired by IBM. The family member and the officer routinely shared confidences regarding personal and business matters, including information concerning the pending acquisition of SPSS. Dawson began purchasing SPSS call options shortly after the family member sought financial advice from Dawson as to whether the family member could do anything with the confidential information he had learned from the officer.
The SEC’s complaint charges Dawson with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Dawson has agreed to settle the SEC’s charges without admitting or denying the allegations. Dawson has consented to the entry of a final judgment, subject to the Court’s approval, permanently enjoining him from engaging in the above violations, and requiring him to pay disgorgement and prejudgment interest.
On November 18, 2010, Dawson pled guilty to three counts of wire fraud for conduct arising out of the fraudulent offering scheme described in the Complaint and on March 8, 2011, Dawson was sentenced to 54 months in prison and was ordered to pay restitution in the amount of $3.3 million.
The Commission acknowledges the Options Regulatory Surveillance Authority, the United States Attorney for the Northern District of Illinois, and the Federal Bureau of Investigation for their assistance in this matter.