SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16650 / August 10, 2000
SEC v. Kenneth R. Payne, et al., S.D. IN; No.IP00-1265C
COURT TEMPORARILY ENJOINS SIX DEFENDANTS IN $29 MILLION PONZI SCHEME
The Commission announced that on August 10, 2000, Judge Tinder of the United States District Court for the Southern District of Indiana entered a temporary restraining order against Defendants JMS Investment Group, LLC, Heartland Financial Services, Inc., Kenneth Payne, Johann Smith, Daniel Danker and Constance Brooks-Kiefer for defrauding 330 investors, many of whom were elderly, out of $29.1 million. The Complaint alleged that from at least March 1999 to the present, the defendants offered and sold initial public offerings of financial institutions and Internet and technology companies, represented by a unit of JMS. In addition, the defendants sold shares of a bank located in Belize. The Complaint further alleged that the defendants held Heartland out to the public as a brokerage firm and accepted money to purchase unit investment trusts, mutual funds and money markets. In reality, of the $29.1 million raised from investors, less than $2 million was used for legitimate investment purposes, while $2.2 million was paid to the defendants, $1.3 million was withdrawn in cash, nearly $1 million was used for travel and entertainment expenses and $15 million was used to repay investors in the Ponzi scheme.
The Court granted the Commission's emergency motion and temporarily enjoined all of the defendants from violations of the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; temporarily enjoined Defendants JMS, Smith, Payne and Danker from violations of the registration provisions, Sections 5(a) and 5(c) of the Securities Act; and Defendants Heartland, JMS, Smith, Payne and Danker from violations or aiding and abetting violations of the broker-dealer registration and antifraud provisions, Sections 15(a) and 15(c) of the Exchange Act and Rule 15c1-2 thereunder, respectively. Finally, the Court entered orders freezing the assets of all of the defendants and prohibiting the destruction of documents.