SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16931 / March 13, 2001
SEC v. Charles R. Homa, Michael Gause, et al., Civil Action No. 99 CV 6895 (N.D.Ill. October 15, 1999)
United States v. Michael Gause, Criminal Action No. 99 Cr. 1100 (JGK) (S.D.N.Y., October 24, 1999)
The Commission and the United States Attorney for the Southern District of New York announced that on January 2, 2001, Michael Gause pled guilty to conspiracy, securities fraud and international money laundering charges in connection with his direction of a large-scale, international "Ponzi scheme". Through this scheme, Gause defrauded more than 1,000 investors throughout the United States and elsewhere of more than $300 million. Gause directed the issuance and sale to investors of different high-interest debt securities, many of which bore annual interest rates of 36 percent. Gause and others represented to investors that the proceeds from the sales of these securities would be provided to Cash 4 Titles, an Atlanta, Georgia, company engaged in providing "car title loans," high-interest consumer loans secured by automobile titles pledged as collateral by borrowers. Contrary to the representations made to investors, however, only a small portion of the proceeds obtained from the sales of these securities were ever actually provided to Cash 4 Titles; most of the proceeds were used for the undisclosed purposes of paying interest and principal due to existing investors, as well as paying commissions and compensation to Gause and others.
Gause conducted much of the fraudulent investment scheme from the Cayman Islands, where he controlled a network of corporations and bank accounts. In an effort to promote the scheme, Gause caused at least $24.5 million to be transferred between his Cayman Islands accounts and accounts that he controlled in the United States.
Gause faces a maximum sentence of 20 years in prison and a fine of $500,000 or twice the value of property involved in the offense on each of four international money laundering counts, 10 years in prison and a fine of $1 million or twice the gross gain or loss resulting from the crime on the securities fraud count and five years in prison and a fine of $250,000 or twice the gross gain or loss resulting from the crime on the conspiracy count. In the Commission's civil action filed in October 15, 1999, a federal judge has imposed asset freezes on Gause and the 44 other defendants and relief defendants named in the scheme. On January 14, 2000, the Court entered a permanent injunction against Gause, by consent, against future violations of the anti-fraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The case is still pending against all defendants.