SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17322 / January 16, 2002
SECURITIES AND EXCHANGE COMMISSION v. LEWIS J. MCCONNELL, JR., NED L. HUGGINS, AND GREGORY T. WOOD, United States District Court for the District of Columbia, Civil Action No. 02 0075 RCL
On January 16, 2002, the Securities and Exchange Commission filed a securities fraud case in the United States District Court for the District of Columbia alleging that Lewis J. McConnell, Jr., Ned L. Huggins, and Gregory T. Wood engaged in the fraudulent offering of unregistered "prime bank note" securities.
The Commission's complaint alleges that the defendants raised over $7 million from at least 21 investors by promoting their "Secure Private Placement Program," which purportedly generated risk-free returns of 20-25% per week. In material distributed to investors, the Secure Private Placement Program was described as a joint venture between the investor and Gold Stream Holdings, Inc., in which the investor would participate in a program of trading certain "highly rated financial instruments." However, according to the complaint, the Secure Private Placement Program was merely a ploy by McConnell to obtain financing for Gold Stream Holdings, which was a company through which he was conducting or trying to conduct his entertainment business. The complaint further alleges that McConnell hired Huggins and Wood to distribute certain materials to the investors, and that these materials contained numerous material misrepresentations and omissions concerning, among other things, the existence of such "highly rated financial instruments," Gold Stream Holdings' ability to participate in such a trading program, and the intended use of the investors' funds.
The Commission's complaint charges all of the defendants with violations of the registration and antifraud provisions of the securities laws [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 (the "Exchange Act"), and Rule 10b-5 thereunder]. The Commission's complaint seeks judgments permanently enjoining the defendants from future violations of the registration and antifraud provisions and ordering them to pay civil monetary penalties.
Without admitting or denying the allegations in the complaint, Huggins and Wood consented to the entry of a final judgment permanently enjoining each of them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and waiving payment of civil monetary penalties based on their inability to pay. The charges against McConnell are pending. All funds obtained by the defendants as a result of their illegal scheme have been returned to investors.
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This case is part of the SEC's continuing effort to combat prime bank fraud and to alert the public to the risks posed by these phony instruments. The risks of this type of fraud and warnings about how to avoid it are spelled out in the Interagency Advisory: Warning Concerning "Prime Bank" Notes, Guarantees, and Letters of Credit and Similar Financial Instruments (October 21, 1993), and other information which is available through the SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml.