SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17049 / June 22, 2001
SEC v. Kenneth R. Payne, et al., Civil Action No. IP00-1265C (S.D. IN)(filed August 10, 2000)
The U.S. Securities and Exchange Commission (SEC) announced today that on June 15, the Honorable John D. Tinder, United States District Judge for the Southern District of Indiana, sentenced Daniel G. Danker (Danker), a resident of Indianapolis, Indiana, to five years and eleven months in prison, ordered him to pay restitution of more than $27 million and a fine of $50,000 for his involvement in a $29 million Ponzi scheme. In March, Danker, former vice-president and secretary of Heartland Financial Services, Inc. (Heartland), entered a guilty plea to two counts of mail fraud and one count of money laundering based on his fraudulent conduct. Previously, on August 10, 2000, Judge Tinder, who also presides over a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) captioned SEC v. Payne, et al., IP00-1265 C, entered a temporary restraining order in that case against Danker, Heartland, JMS Investment Group, LLC (JMS), Kenneth R. Payne (Payne), Johann M. Smith (Smith) and Constance Brooks-Kiefer (Brooks-Kiefer) for their involvement in the Ponzi scheme.
The SEC's complaint in the civil lawsuit, filed on August 10, 2000, alleged that from at least March 1999 to the present, the defendants defrauded investors, many of whom were elderly, through the offer and sale of three bogus investment opportunities: (1) initial public offerings of financial institutions and technology companies represented by units of JMS; (2) interests in an offshore bank located in Belize; and (3) units of Heartland as well as stocks, money markets and mutual funds through Heartland. Rather than use investor funds for legitimate securities transactions, the SEC alleged that the defendants commingled investors' funds from all three schemes in a common bank account controlled by Smith and Brooks-Kiefer and used most of the $29 million raised from investors to repay investors in the Ponzi scheme and for other non-investment related purposes.
Previously, on November 16, 2000, Judge Tinder entered orders of permanent injunction against JMS and Smith, both of whom previously consented to the entry of orders of preliminary injunction. JMS and Smith, without admitting or denying the allegations of the SEC's complaint, except as to jurisdiction, consented to the entry of the orders, which enjoin them from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 15(a) and 15(c) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 15c1-2 thereunder. Among other things, the Order requires JMS and Smith to disgorge all ill-gotten gains received by them as a result of the conduct alleged in the SEC's complaint, plus prejudgment interest on those amounts. Additionally, the Court entered orders of preliminary injunction against Brooks-Kiefer, Payne and Heartland on August 21, 2000 by their consent, preliminarily enjoining them from violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and, further, preliminarily enjoining Payne and Heartland from violations of Sections 5(a) and 5(c) of the Securities Act and Sections 15(a) and 15(c) of the Exchange Act and Rule 15c1-2 thereunder.
The staff acknowledges the assistance of the U.S. Attorney's Office for the Southern District of Indiana, the Internal Revenue Service-Criminal Investigation Division of Indianapolis, Indiana, and the Federal Bureau of Investigation-Indianapolis, Indiana.http://www.sec.gov/litigation/litreleases/lr17049.htm