SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16652 / August 14, 2000
SECURITIES AND EXCHANGE COMMISSION v. TEXAS AMERICAN GROUP, INC., et al., Case No. 1:00CV01955 (D.D.C., filed August 11, 2000).
SEC SUES TEXAS AMERICAN GROUP, INC. AND ITS
The Securities and Exchange Commission (the "Commission") announced today that it filed a complaint in the United States District Court for the District of Columbia against Texas American Group, Inc., a Texas corporation headquartered in Verdi, Nevada; Alan E. Humphrey, the company's President; Richard E. Lee, a Texas American Group director; and William Grosvenor, the company's Chief Executive Officer. The Commission's complaint alleges that in 1995 and 1996, the defendants repeatedly made false statements about the company's assets and financial condition in filings with the Commission, at investor seminars, and in promotional materials and advertisements. The complaint further alleges that during the same period, Texas American Group issued over 170 million unregistered shares of its common stock in sham offshore transactions.
According to the complaint, the defendants claimed that Texas American Group owned the Amarilla Golf and Country Club, purportedly a $148 million resort in the Canary Islands, even though Texas American Group never actually owned Amarilla. The complaint also alleges that Texas American Group falsely claimed to own various other assets, including internet lottery and casino games, a hotel development and management company, and a London pathology testing service. The complaint further alleges that Texas American Group falsely claimed in national advertisements recommending the stock that it had $300 million in assets.
In addition, as alleged in the complaint, the defendants issued over 170 million unregistered shares of Texas American Group stock to various offshore persons and entities, for the purported purpose of obtaining real estate and other assets. Notwithstanding the offshore nature of the transactions, the complaint alleges that the issuance of this stock did not qualify for the Regulation S safe harbor from registration because Texas American Group's actions constituted a scheme to temporarily place the securities offshore in order to evade the registration requirements of the federal securities laws. The complaint alleges that Texas American's Group's scheme to evade the registration requirements of the federal securities laws is evidenced by the fact that: (i) many, if not all, of the transactions for which Texas American Group issued stock were shams; (ii) in many cases the stock was issued to entities that appear to be controlled by individuals associated with Texas American Group; and (iii) the stock flowed back into the United States almost immediately after the expiration of what was then the 40-day restricted period under Regulation S.
The complaint alleges that by their conduct, all of the defendants violated the antifraud provisions of the Securities Exchange Act of 1934 ("Exchange Act"), as set forth in Section 10(b) and Rule 10b-5 thereunder. The complaint also alleges that Texas American Group, Humphrey and Grosvenor violated the antifraud provisions of the Securities Act of 1933 ("Securities Act"), as set forth in Section 17(a). The complaint further alleges that Texas American Group, Humphrey and Lee violated the registration provisions of Section 5 of the Securities Act. In addition, the complaint alleges that Humphrey violated Rule 13b2-2 of the Exchange Act for lying to an auditor about the Amarilla transaction and that the company violated Section 13(a) of the Exchange Act and Rules 12b-20, 12b-25, 13a-1, 13a-11 and 13a-13 in connection with various reporting violations.
The complaint seeks permanent injunctions against all of the defendants, a permanent injunction against Humphrey serving as an officer or director of any reporting public company, and civil monetary penalties against Humphrey, Lee and Grosvenor.
This enforcement action is part of the Commission's four-pronged approach to minimizing microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to microcap fraud, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm.