SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16321 / September 30, 1999
SEC STOPS $110 MILLION ON-GOING FRAUDULENT OFFERING AND MISAPPROPRIATION OF INVESTOR FUNDS
Securities and Exchange Commission v. Latin American Services Co., Ltd., Cyprus Funds, Inc., Eric V. Bartoli, Douglas R. Shisler, James L. Binge And Peter J. Esposito, Case No. 99-2360-CIV-DAVIS (S.D. Fla.)
The Securities and Exchange Commission ("SEC") announced that on August 27, 1999, the Honorable Edward B. Davis of the United States District Court for the Southern District of Florida entered multiple emergency Orders to halt an ongoing, fraudulent offering of unregistered securities by Cyprus Funds, Inc. ("Cyprus Funds"), an unregistered foreign mutual fund, and its investment advisor Latin American Services Co., Ltd. (Lasco), and to halt the further misappropriation of assets and investor funds by their principals. In its Complaint and application to the Court for a temporary restraining order, asset freeze and appointment of a receiver, all of which the Court granted, the SEC alleged that Cyprus Funds and Lasco had raised over $110 million from investors in the United States and in Latin America through the sale of mutual fund shares and "certificates of deposit," but that millions of investor funds and other assets had been misappropriated by Cyprus Funds, Lasco and its principals.
Named as defendants in the SEC's Complaint in addition to Cyprus Funds and Lasco were the following four Cyprus Funds directors:
James L. Binge, is 52 years old and resides in Massillon, Ohio.
Douglas R. Shisler, is 52 years old and resides in Doylestown, Ohio.
Peter J. Esposito, is 45 years old and resides in Canfield, Ohio.
The SEC's complaint also names B&S Farms, Inc. and Flanders Investment Holdings Limited, Inc. as relief defendants. The SEC alleges that the relief defendants, which are controlled by defendants Bartoli, Binge and Shisler, received investor funds to which investors are entitled. The Court ordered that the relief defendants' assets be frozen pending a hearing on the SEC's motion for preliminary injunction.
According to the SEC's complaint, since at least 1993, defendants have sold Cyprus Funds investments to Latin American and U.S. investors. Many of the U.S. investors are elderly Ohio residents who invested their retirement savings based on defendants' representation that the Cyprus Funds invested only in conservative securities. The SEC's Complaint alleges that, in contrast to defendants' representations that Cyprus Funds would invest in "blue chip" stocks and bonds, in reality, Bartoli, Binge, Shisler and Esposito misappropriated millions of dollars and diverted monies to their other businesses. They also used investor monies to repay investors in still another unrelated investment scheme and, in a Ponzi-scheme fashion, to pay interest to Cyprus Funds investors. According to the Complaint, the fraudulent scheme began to unravel when Cyprus Funds started refusing to honor redemption requests. Shortly thereafter, Cyprus Fund's investment advisor, Lasco, closed its Miami, Florida office, principals of Cyprus Funds and Lasco refused to return investor calls, and became increasing evasive with investors. In July, investors who had previously been receiving monthly dividend checks were unable to cash their distributions due to insufficient funds.
Among the Orders entered by the Court to shut down this fraudulent operation are: (1) a Temporary Restraining Order to halt the securities sales, (2) an Order freezing the defendants' assets and (3) an Order appointing a Receiver to immediately secure the offices and assets of Cyprus Funds and Lasco. The SEC is also seeking in this lawsuit preliminary and permanent injunctions, disgorgement of ill-gotten profits and money penalties. The SEC's Complaint alleges that defendants have violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, thereunder; that defendant Cyprus Fund has violated Section 7(d) of the Investment Company Act of 1940; and that defendants Lasco and Bartoli have violated Sections 206(1) and (2) of the Investment Advisers Act of 1940.