UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16269 / September 1, 1999
SECURITIES AND EXCHANGE COMMISSION v. GARY LANDON DAVENPORT, dba Southwest Family Trust Service, Financial Marketing Service and Liberty Marketing Service, RUSSELL REEVES, dba Enterra Marketing Service, RICHARD EARL RUSSELL and GREGORY MONROE ROBERTS
SEC Halts Fraudulent Investment Scheme Targeting Senior Citizens
The Commission announced today that on August 30, 1999, Judge Jerry Buchmeyer, United States District Judge for the Northern District of Texas, granted the Commission's request for a temporary restraining order halting a fraudulent investment scheme targeting senior citizens that has been ongoing since 1992. The Commission's Complaint charges that approximately 100 elderly individuals were fleeced of some $2.5 million in the scheme. Under the guise of providing estate and financial planning services, the defendants solicited information about the senior citizens' assets and investments. Upon obtaining this information, the defendants encouraged the senior citizens to liquidate their legitimate investments, including bank certificates of deposit and other safe investments, and to invest the proceeds in phony promissory notes promising higher rates of return. In fact, according to the Commission's complaint, the issuers of the notes had no real business or did not exist and the defendants misappropriated, or stole, most of the elderly investors' funds.
According to the Commission's Complaint, the scheme was devised and or participated in by Gary L. Davenport ("Davenport"), Russell Reeves ("Reeves"), Richard E. Russell ("Russell") and Gregory M. Roberts ("Roberts").
According to the Commission's Complaint, Davenport purchased and used mailing lists to target elderly individuals in north and west Texas for investments in so called "guaranteed" and fully-collateralized "promissory notes." In order to solicit senior citizens, Davenport used Southwest to disseminate literature designed to alarm the elderly recipients with claims that the Texas probate process was lengthy, complicated and expensive and to suggest that Southwest could provide "estate planning services," "living trusts" and "revocable trusts" to overcome the identified problem. When the targets of the mailing responded, they were urged by Davenport, Reeves, Roberts and Russell (a convicted felon) to liquidate legitimate, safe investments, to withdraw IRA monies and to invest in FMS, Liberty or Enterra in order to achieve a higher rate of return.
Investors were told their investment would be used to fund business ventures, including short-term, high-interest notes, bank cards, resort projects and short-term, interim mortgage loans, all of which did not exist. Instead, investor monies were used by Davenport and his cronies to make interest payments to earlier investors ("Ponzi payments"), pay exorbitant sales commissions, purchase several parcels of real estate, acquire and operate a pawn shop, make payments on personal credit cards and to construct a residence and lake home. Davenport surreptitiously transferred several of these assets to Jane Karen Nail ("Nail"), his ex-wife, to conceal them from investors and regulators. Nail, age 56, is a resident of Graham, Texas. She has been named as a relief defendant in the lawsuit.
Significantly, the Commission's complaint alleges that in 1996 a state court enjoined Davenport, Southwest and FMS from offering trust and estate planning services in this manner because he was engaged in the unauthorized practice of law. In response, Davenport continued his operations under the Liberty name. Liberty used virtually identical materials and offered the same sort of investments. Reeves then created Enterra. Although both Reeves and Russell continued to do business on behalf of Liberty, both also continued the investment fraud targeting the elderly under the Enterra name. Enterra used virtually identical materials and offered the same sort of fraudulent investments.
The temporary restraining order enjoins Reeves from continuing the scheme under the name of Enterra. In addition, Judge Buchmeyer issued orders (1) freezing all assets of Davenport, Southwest, FMS and Liberty, of Reeves and Enterra and of Russell and Roberts, (2) freezing assets of Jane Karen Nail (Davenport's ex-wife) to the extent those assets were derived from investor funds; (3) requiring Davenport, Reeves, Russell, Roberts and Nail to furnish accountings of revenues, expenditures and assets, (4) prohibiting the destruction of documents, (5) authorizing expedited discovery and (6) scheduling a September 9, 1999 hearing.
In its Complaint, the Commission alleges that Davenport, Reeves, Russell and Roberts violated section 17(a) of the Securities Act of 1933, and sections 10(b) and 15 of the Securities Exchange Act of 1934 and Commission Rules 10b-5 and 15c1-2. The Commission is seeking a preliminary and permanent injunction retraining future violations of the antifraud provisions of the federal securities laws; an order requiring disgorgement of all wrongfully obtained profits, with prejudgment interest, and civil penalties against each defendant.