SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17109 /August 28, 2001
SECURITIES AND EXCHANGE COMMISSION v. LEWIS ALLEN RIVLIN, EDWIN EARL HULING III, AND ALFRED HUASCAR VELARDE, AS DEFENDANTS; AND Z-FINANCE, S.A., ANTHONY P. ZIOUDAS, HEDLEY FINANCE LTD., CHRISTIAN DANTE, AND CHRYSANTHOS CHRYSOSTOMOU, AS RELIEF DEFENDANTS, Civil Action No. 99-1455 (RCL) (U.S. District Court for the District of Columbia)
Court Orders Washington Attorney Lewis Rivlin
To Pay Over $6.5 Million For Securities Fraud
The Securities and Exchange Commission announced today that on August 23, 2001, the Honorable Royce C. Lamberth of the United States District Court for the District of Columbia found Washington D.C. attorney Lewis A. Rivlin liable for securities fraud and ordered him to pay over $6.5 million in disgorgement and prejudgment interest. Based primarily on evidence adduced at a five day bench trial in October 2000, the Court found that Rivlin violated the federal securities laws in 1997-98 when he offered securities involving a non-existent high-yield bank debenture "trading program" to investors and sold $6.239 million of the worthless securities to four investor groups, including an Ecuadorian charity for underprivileged girls.
According to Rivlin, the "trading program" was based on the ability of certain individuals, known as "commitment holders," to buy medium term notes or debentures from the top 25 European banks at a deep discount -- 70% of face value -- and then resell the instruments to major investment firms like Merrill Lynch at only a small discount, perhaps 96% of face value, on some kind of secret trading market. The Court found, however, that Rivlin's "trading program" was "a complete scam," and that none of the investor funds Rivlin obtained was ever used in any "trading program."
The Court further found that "`trading programs' do not exist," that "it is simply ludicrous to think that any sophisticated financial institution would sell something worth $100 for $70," that "there is no secret secondary market," and that "trading programs" are "a variation on the `prime bank' schemes of the early 1990's, which have been the subject of numerous public advisories" by federal agencies including the SEC and the Federal Reserve Board.
The Court noted that according to a credible and convincing expert witness from the Federal Reserve Board who testified at the trial, there are a number of hallmarks or characteristics of financial instrument fraud, including
- the use of the term "prime bank" or an equivalent like top 50 world banks, top 25 European banks or top 100 Latin American banks;
- the promise of unrealistic rates of return with little or no risk;
- overly complex, nonsensical "gobbledygook";
- an emphasis on secrecy;
- a guarantee that the investors' principal is absolutely safe because it is going into an attorney's or some other special account, or secured by a bond or other guarantee;
- use of jargon from a bucket of 30 or so bogus terms and phrases, such as "international banking day" and "commitment holder"; and
- alleged involvement in a charitable endeavor or world humanitarian effort.
The Court permanently enjoined Rivlin from committing fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and from acting as an unregistered broker or dealer in violation of Section 15(a)(1) of the Exchange Act. It also prohibited Rivlin "from any involvement in, or conduct facilitating or relating in any way to, any program purporting to involve trading or related activities in bank debentures or other bank instruments." Finally, the Court ordered Rivlin to pay $5.166 million in disgorgement plus approximately $1.391 million in prejudgment interest. The Court explained that the disgorgement amount represents the $6.239 million invested by the four investor groups in the "trading program," less amounts recovered to date on behalf of investors, including $873,000 the SEC obtained from relief defendants in Greece. Of that amount, $650,000 was returned to the Ecuadorian girls' school.
For more information about this matter, see Litigation Release Nos. 16934 (March 15, 2001); 16779 (Oct. 25, 2000); 16668 (Aug. 30, 2000); 16593 (June 15, 2000); 16389 (Dec. 13, 1999) and 16179 (June 8, 1999).