SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 15670 / March 13, 1998 Securities and Exchange Commission v. Capital Acquisitions, Inc., The Somerset Group, Inc., Wayne Notwell and Clealon Mann Civil Action No. 2:97CV-0977S (USDC UT.) On March 12, 1998, Judge David Sam, Chief United States Judge for the District of Utah, signed an order appointing a Special Agent for Capital Acquisitions, Inc. ("Capital"). The Special Agent, Robert G. Wing of the Salt Lake City law firm of Prince, Yeates and Geldzahler, is charged with performing a full accounting of the assets of the company which the Securities and Exchange Commission sued for operating a Ponzi scheme that raised nearly $24 million in violation of the federal securities laws. The Commission filed the action against Capital and three others on December 19, 1997, and the court granted the Commission's motions for entry of a temporary restraining order, an order freezing the assets of the all defendants, and later a preliminary injunction. Named as defendants, in addition to Capital and its president Wayne Notwell, are The Somerset Group, Inc. ("Somerset") and its president Clealon Mann ("Mann"). Capital began raising funds from investors in 1996 in order to conduct oil and gas drilling operations in Kansas and California. Capital has raised nearly $24 million from at least 600 investors in several states through sales of three-year notes offering an annual "guaranteed" return of 20%. Investors were solicited through a network of sales agents directed by Mann and Somerset. The Commission alleges in its complaint that the defendants conducted a Ponzi scheme in which the source of interest payments to current investors was new investor funds received from the ongoing sale of Capital's notes. While Capital claimed to be operating more than 225 oil wells in Kansas and California, it failed to disclose that the income from the wells is insufficient to pay investors their returns. Instead, the defendants paid interest wholly from new investor proceeds, as Capital has not generated sufficient cash flow from its operations to pay interest. The Commission also alleges that the offering materials used in the sales of Capital's notes failed to disclose material information. For example, the materials failed to disclose that sales agents were receiving excessive commissions, totaling approximately 46% of each dollar invested in the notes. In addition, the offering materials failed to disclose that Capital withheld 20% of the proceeds for payment to New England International Surety, Inc., a Panamanian company which is the purported guarantor on the notes. Further, the materials failed to disclose that Capital, the issuer of the notes, had no control over the funds being raised by sales agents. Instead, all investor funds were pooled in a single account controlled by Mann from which he disbursed monthly interest payments to investors, commission payments to sales agents and expenses associated with Capital's business operations. Finally, the materials fail ======END OF PAGE 1====== to disclose that Capital, Mann and Somerset were ordered to cease and desist the solicitation of investors for oil and gas investments in the state of Kansas and other states. The March 12, 1998 order signed by Judge Sam also authorizes the Special Agent to attend Capital's board meetings, have full access to Capital's books and records, and to evaluate Capital's oil and gas holdings and supervise the expenditure of funds by Capital and other related companies. ======END OF PAGE 2====== ======END OF PAGE 2======