United States Securities and Exchange Commission
Litigation Release No. 16371 / November 24, 1999
Securities and Exchange Commission v. Cornerstone Prodigy Group, Inc., Gary D. Reeder, Sandra Reeder and Executive Netprofits, Inc. (Defendant Solely for Purposes of Equitable Relief) Case No. 4:99-CV-0978-Y USDC, NDTX (Dallas Division)
The U.S. Securities and Exchange Commission ("Commission") announced today that on November 24, 1999, Judge Terry R. Means, United States District Judge for the Northern District of Texas, granted the Commission's request for a Temporary Restraining Order and other relief to protect its ability to recover millions of dollars raised in a fraudulent securities scheme. The Commission charges Cornerstone Prodigy Group, Inc. and its principals Gary D. Reeder, a convicted felon, and Sandra Reeder, a licensed securities professional, with perpetrating this scheme. Specifically, from early 1999 through the present, Defendants, all of Fort Worth, have been engaged in a fraudulent scheme and have raised over $16.5 million from approximately 625 investors through the offer and sale of unregistered securities promising investors a share in the profits of Cornerstone and its affiliated companies. Cornerstone's scheme involved sales of investments through its website on the Internet, cold-calling of potential investors, and the payment of cash for investor referrals.
The Commission alleges that Defendants attracted investors by falsely promising that their funds would be pooled and used for the business operations of Cornerstone and its affiliated companies. The Complaint also alleges that the Defendants falsely represented that these companies generate profits that enable Cornerstone to pay investors a 40 percent return on their investment within four months. Further, Defendants assured investors that the investments are safe, touting a "100 percent success ratio." Essentially, the Commission alleges the investment program is a Ponzi scheme wherein funds of recent investors are used to make purported profit payments to earlier investors. Contrary to representations made by the Defendants, investor funds were not used, to any material extent, in any profit-generating activity of Cornerstone or its affiliates. Rather, Defendants have, and continue to, misappropriate investor funds for unauthorized business uses and for the personal benefit of Gary and Sandra Reeder.
Mr. Reeder, age 53, is the co-chairman and CEO of growth and development for Cornerstone. According to the Commission's Complaint, he has been convicted in Texas of numerous felony offenses, including forgery, theft and burglary. Ms. Reeder, age 52, is the co-chairman and CEO of client relations for Cornerstone. She is also a licensed securities broker associated with WMA Securities, Inc., a broker-dealer registered with the Commission. The Commission also named Executive NetProfits, Inc., a Texas entity owned and controlled by Gary and Sandra Reeder, as a relief defendant in the case, alleging that it has received investors' funds from the Defendants.
In its lawsuit, filed today, the Commission sought and the Court granted the following emergency relief: 1) a temporary restraining order against future violations by the Defendants; 2) an immediate asset freeze of all assets of Defendants Cornerstone, Gary Reeder, Sandra Reeder and Relief Defendant NetProfits; 3) an order requiring Defendants and Relief Defendant to provide an accounting; 4) an order prohibiting the destruction of records; 5) an order requiring Defendants and Relief Defendant to repatriate assets located outside the United States; 6) expedited discovery; 7) the appointment of a temporary receiver; 8) an order requiring Defendants Gary and Sandra Reeder to surrender their passports and prohibiting them from leaving the continental United States.
In its Complaint, the Commission alleges that Cornerstone, Gary Reeder, and Sandra Reeder violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, and Commission Rule 10b-5. The Commission is seeking a permanent injunction restraining future violations of the antifraud and securities registration provisions of the federal securities laws; an order requiring disgorgement of all wrongfully obtained profits, with prejudgment interest, and civil penalties against each Defendant.
The case was investigated jointly by the Commission, the Texas State Securities Board ("TSSB"), and the Federal Bureau of Investigation ("FBI"). The Commission wishes to acknowledge the very valuable assistance of both the TSSB and the FBI in this matter.http://www.sec.gov/litigation/litreleases/lr16371.htm