SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16644 / August 3, 2000
SECURITIES AND EXCHANGE COMMISSION V. CHEMICAL TRUST, ET. AL., Case No. 00-8015-CIV-RYSKAMP (S.D. Fla.)
The Securities and Exchange Commission announced that on July 28, 2000, the Honorable Kenneth L. Ryskamp, United States District Judge for the Southern District of Florida, entered a summary judgment against defendants Chemical Trust ("Chemical"), U.S. Guarantee Corp. ("U.S. Guarantee"), and United Marketing Trust ("United") and against relief defendants Three Rivers Trust ("Three Rivers") and Merrit Pierce Trust ("Merrit Pierce"). The judgment permanently enjoins Chemical, U.S. Guarantee, and United from violating the registration and anti-fraud provisions of the federal securities laws, namely Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The judgment also orders defendants Chemical and United to disgorge, jointly and severally, $17 million in ill-gotten gains. Defendant U.S. Guarantee and relief defendants Three Rivers and Merrit are ordered to disgorge $3,290,000, $800,000 and $60,000, respectively, in ill-gotten gains. The judgment also orders defendants Chemical, U.S. Guarantee, and United to pay $100,000 each in civil penalties. The Court also continued an order requiring defendants Chemical, U.S. Guarantee, and United and relief defendants Three Rivers and Merrit to preserve records until further order.
On January 7, 2000, the SEC filed a complaint against Chemical Trust, U.S. Guarantee, United, Virgil W. Womack ("Womack"), Clifton Wilkinson ("Wilkinson"), Lewey L. Cato, III ("Cato"), and Alvin A. Tang ("Tang"), among others, seeking emergency relief. On January 7, 2000, the Court entered a temporary restraining order and asset freeze against the defendants and, on January 13, 2000, entered a preliminary injunction against them. On April 12, 2000, the Court entered a consent injunction against Tang, in which he neither admits nor denies the allegations against him, permanently enjoining him from violating the registration and anti-fraud provisions of the federal securities laws, namely Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and ordered him to pay disgorgement and civil penalties in amounts to be subsequently determined. Also, on May 12, 2000, the Court entered a default judgment against relief defendant Prestige Accounting Services, Inc. ("Prestige"), froze its assets, and ordered Prestige to pay disgorgement and to repatriate investors' funds. On June 6, 2000, the Court entered summary judgment against defendants Womack, Wilkinson, and Cato, permanently enjoining them from further violations of the federal securities laws, and ordering them to disgorge ill-gotten gains and to pay civil penalties.
According to the SEC's complaint, the defendants made material misrepresentations and omissions in connection with the sale of at least $17 million in investment contracts to the investing public. The contracts promised investors returns of between 9.25% to 15% annually, depending upon the amount invested. The complaint further alleges that Chemical represented to investors that their funds would be used to purchase U.S. Treasury notes and distressed properties and that the investment was 100% guaranteed through a security bond issued by U.S. Guarantee. According to the SEC's complaint, Chemical has not purchased any U.S. treasury notes or distressed properties, and investor funds are not secured as promised. Instead, the complaint alleges that the defendants misappropriated millions of dollars in investor monies and expatriated them to offshore bank accounts. The complaint alleges that in a classic Ponzi scheme fashion, Chemical used new investor funds to pay interest to existing investors. The complaint further alleges that the defendants made material misrepresentations and omissions to investors concerning, among other things, the assets of U.S. Guarantee and the background of its principals.