UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16665 / August 29, 2000
SECURITIES AND EXCHANGE COMMISSION V. LE CLUB PRIVÉ S.A., ZDENEK KIESLICH, RON ZVI MENDELSON, EUGENE G. CHUSID, LE BARON SOLIDARITY, S.A., LE BARON INSURED FUND, LE BARON HIGH INCOME FUND, LE BARON HIGH YIELD FUND, Defendants; and RISHON BANK (SC), RISHON FINANCIAL SERVICES, S.A., RISHON INVESTMENT CORP., M&R BANK CORP., WORLD WIDE TRADING GROUP OF COMPANIES, INC., WORLD US FINANCIAL SERVICES, INC., BORIS G. CHUSID, CITADEL BANK & TRUST INC., Relief Defendants. Civil Action No. 3:00CV-1851-R
The United States Securities and Exchange Commission ("SEC") announced that they had filed a civil action in the United States District Court in Dallas, Texas to stop an alleged fraudulent Internet pyramid scheme. Disguised as an Internet investment club, Le Club Privé ("LCP"), and its affiliated persons and entities, perpetrated a $5.6 million unregistered offering fraud against more than 2,000 U.S. investors. Since October 1999, LCP has been soliciting investors through websites to purchase "memberships," claiming to give investors two distinct ways to make money: (1) by providing multilevel marketing commissions ("MLM commissions") for the recruitment of new members, and (2) by offering shares of three domestic or offshore mutual funds promising huge returns. On August 24, 2000, U.S. District Judge Jorge A. Solis, entered a temporary restraining order and orders freezing the assets of all defendants and relief defendants and appointing a receiver for any investor funds remaining in U.S. financial institutions. Since the defendants had sought to "hide" behind the Internet to, among other things, frustrate service and had used the Internet to further their scheme, Judge Solis, at the Commission's request, ordered that defendants could be served by electronic mail. To date, more than $12 million dollars has been frozen pursuant to the Court's orders.
The SEC alleges that LCP, its apparent principals, Zdenek Kieslich ("Kieslich"), Ron Z. Mendelson ("Mendelson") and Eugene G. Chusid ("Chusid"), and LCP's affiliate, Le Baron Solidarity, S.A. ("Le Baron"), conducted illegal offerings by selling unregistered MLM memberships and mutual fund shares. Le Baron and its three mutual funds, Le Baron Insured Fund, Le Baron High Income Fund, and Le Baron High Yield Fund (collectively the "Premier Funds"), also illegally sold securities without having registered as investment companies.
Specifically, LCP offered memberships, at a cost of $1,495 plus $149 in monthly dues, which purportedly provided investors the opportunity to earn MLM commissions by recruiting new members to the club. Investors were to receive $500 for each new LCP member that they recruited, and a like amount for every person recruited by their down line members. By becoming a member, each investor also was to gain access to LCP's "backroom," where LCP posts recommendations on various investments. In addition, investors who "upgraded" to a "Premier Membership," at an additional cost of $2,995, were to receive $1,000 in MLM commissions, as well as access to buy shares in the Premier Funds offered by Le Baron. The Premier Funds promised and, in some instances, "guaranteed" outrageous monthly returns ranging from six to 40 percent, without any risk to principal.
The LCP investment club is a sham, with investor funds being diverted by its three principals. Bank and other records reflect that within the past six months, LCP has channeled investor proceeds through accounts controlled by Mendelson and Chusid at five different financial institutions in the United States, several of which have closed the accounts due to suspicious activity. The staff has traced more than $3.4 million of these funds directly to the LCP principals or other entities that they control. None of the banking or financial transactions reviewed by the staff reflect any indicia of legitimate business activity.
The SEC's complaint charges that LCP, Kieslich, Mendelson, Chusid and Le Baron violated 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 complaint also charges the Le Baron Insured Fund, Le Baron High Income Fund and Le Baron High Yield Fund for violations of Section 7(a) or, in the alternative, Section 7(d) of the Investment Company Act of 1940, 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. In addition to the emergency relief set out above, the SEC seeks preliminary and permanent injunctions, disgorgement and civil penalties, and repatriation orders against LCP, Kieslich, Mendelson, Chusid and Le Baron. The SEC seeks disgorgement and prejudgment interest against the relief defendants.