SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17102 / August 14, 2001
Securities and Exchange Commission v. Kirk I. Koskella, O. Jay Neeley and ELTC Limited Civil Action No. 01-C-6227 (WJH) (N.D. Ill.)
The Securities and Exchange Commission (Commission) today announced that on August 14, 2001, it filed a civil action in the United States District Court for the Northern District of Illinois against Kirk I. Koskella (Koskella) and O. Jay Neeley, both of Orem, Utah, and their company, ELTC Limited (ELTC) (collectively, Defendants).
The Commission's Complaint alleges that two private Nevada corporations, JMC International, Inc. (JMC) and Northstar, Inc. (Northstar), which had no assets or operating income, each issued a worthless $250 million face value bond. The Complaint also alleges that these corporations also took additional actions, including drafting and disseminating fraudulent private placement memoranda for the bonds, to create the false impression that the instruments were genuine debt securities. The Complaint also alleges that the private placement memoranda misrepresented and omitted material facts regarding the assets and financial condition of JMC and Northstar, their ability and intent to pay interest on the bonds, the existence of a Liquidity Facility provided by a Top 100 World Bank, and the intended use of the bond proceeds. The Complaint also alleges that, under false pretenses, Northstar caused the CUSIP Service Bureau to assign the bonds corporate bond identification numbers, and Reuters America, Inc., to list the bonds on its Reuters 3000 Fixed Income Screen (Reuters Screen). The Complaint also alleges that JMC and Northstar took these actions knowing that the bonds were not backed by any assets and that neither JMC nor Northstar had any assets, revenues or other financial resources to make the interest payments reflected on the bonds. The Complaint also alleges that JMC and Northstar thereafter released the bonds into the stream of commerce knowing that they would be offered to investors based on this false and misleading information.
The Complaint also alleges that, in 1999, the bonds were assigned to Koskella and Neeley. Thereafter, Koskella and Neeley, through ELTC, used the fraudulent private placement memoranda to solicit offers from various institutional investors and lenders to purchase the bonds or to provide them with a margin loan or commercial loan for the face value of the bonds. To induce institutional investors and lenders to allow them to do so, Defendants misrepresented and omitted material facts concerning the bonds. Specifically, they misrepresented, among other things, that the bonds were: (i) valid debt securities issued by JMC and Northstar in legitimate private placement offerings in exchange for consideration equal to the face value of the bonds; and (ii) rated by Moody's. They also omitted to state, among other things, that: (i) the bonds were worthless, (ii) neither JMC nor Northstar had ever paid interest on the bonds, and (iii) neither company had any assets, revenues or other financial resources to pay interest on the bonds in the future. Defendants also sent institutional investors and lenders misleading documentation regarding the bonds, including information reflecting that the bonds were listed on the Reuters Screen. Defendants knew, but failed to inform the institutional investors and lenders, that the Reuters Screen information was misleading because it created the false impression that the bonds were legitimate debt securities.
The Complaint also alleges that, by these activities, Koskella, Neeley and ELTC violated Sections 17(a)(1) and 17(a)(3) of the Securities Act. In addition to an injunction, the Complaint also seeks civil penalties against Koskella and Neeley.
The Commission also announced that on August 14, 2001 it simultaneously instituted and settled administrative proceedings against JMC, Northstar and these companies' respective controlling officers, Joan L. Fleener, age 61, of San Bruno, California, and Carolla S.R. Hopkins, age 50, of Yreka, California (collectively, Respondents). Respondents settled the administrative proceedings against them by consenting, without admitting or denying the Commission's findings, to the entry of the Commission's order: (1) finding that Respondents caused Koskella, Neeley and ELTC's violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act; and (2) ordering Respondents to cease and desist from committing or causing any violation or any future violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act.