U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21918 / April 6, 2011
Securities and Exchange Commission v. HedgeLender LLC, et al., Case No. 2:09-CV-859 (S.D. Ohio)
SEC OBTAINS FINAL JUDGMENTS AGAINST HEDGELENDER LLC, DANIEL W. STAFFORD, AND FRED R. WAHLER, JR. FOR THEIR ROLES IN A FRAUDULENT STOCK-BASED LOAN SCHEME
The Securities and Exchange Commission (“Commission”) announced today that on March 31, 2011, the Honorable Edmund A. Sargus, Jr. of the United States District Court for the Southern District of Ohio entered final judgments against HedgeLender LLC (“HedgeLender”), Daniel W. Stafford (“Stafford”), and Fred R. Wahler, Jr. (“Wahler”) in connection with their roles in a fraudulent stock-based loan scheme run by Michael and Melissa Spillan (the “Spillans”) through One Equity Corporation and other companies (“One Equity”). The final judgment permanently enjoins HedgeLender, Stafford, and Wahler from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Pursuant to the final judgments, Judge Sargus ordered HedgeLender to disgorge $1,719,567 with prejudgment interest of $347,741, for a total of $2,067,308; Stafford to disgorge $356,085 with prejudgment interest of $76,332, for a total of $432,417; and Wahler to disgorge $298,065 with prejudgment interest of $60,081, for a total of $358,146. Judge Sargus also imposed a third tier civil penalty of $1,065,417 against HedgeLender and second tier civil penalties of $50,000 each against Stafford and Wahler.
On September 30, 2009, the Commission filed a complaint against HedgeLender, a stock-based loan broker located in Philadelphia, and its two principals, Stafford and Wahler, alleging that they made material misrepresentations to clients in connection with a fraudulent scheme operated by the Spillans through One Equity. Specifically, the complaint alleged that from February 2006 through at least November 2007, HedgeLender—through its website and affiliates—marketed One Equity’s stock-based loan program and referred clients to One Equity in exchange for commissions on successful transactions. One Equity was not, however, a legitimate lender. Rather, the Spillans, through One Equity, induced borrowers to transfer ownership of publicly traded stock to them as collateral for purported non-recourse loans based on a false promise to return the shares upon repayment. In fact, the Spillans generally liquidated the shares before funding the loans and failed to maintain adequate cash reserves necessary to repurchase and return the shares to borrowers. The Spillans used the money to pay expenses, including over $1 million in salaries and benefits to themselves.
According to the complaint, HedgeLender, Stafford, and Wahler misrepresented to potential clients that it had certified One Equity’s stock-based loan programs, vetted the professional reputations of those who administered the programs, and ensured the security of borrowers’ shares. In reality, Stafford, a resident of Gaithersburg, Maryland, and Wahler, a resident of Philadelphia, conducted minimal due diligence and failed to investigate “red flags” that cast doubt on One Equity’s ability to administer and fund its stock-based loans. Adequate due diligence would have revealed that One Equity had no funding source and that the Spillans had never run a legitimate stock-based lending enterprise. The complaint further alleges that from February 2006 through at least November 2007, HedgeLender referred approximately 54 borrowers to One Equity and received approximately $1.7 million in commission payments.
For more information, see Litigation Release Nos. 21757 (November 24, 2010), 21385 (January 20, 2010), 21234 (October 1, 2009), 20716A (September 15, 2008), 20643 (July 14, 2008), and 20652 (July 22, 2008).