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U.S. Securities and Exchange Commission

U.S. Securities and Exhange Commission

Litigation Release No. 17381 / February 26, 2002

SEC v. J.T. Wallenbrock & Associates, Larry Toshio Osaki, Van Y. Ichinotsubo and Citadel Capital Management Group, Inc., Civil Action No. 02-00808 ER (C.D. CA).

The U.S. Securities and Exchange Commission ("Commission") announced today that a federal court in Los Angeles entered an order on February 21, 2002, appointing James H. Donell as the Receiver of J.T. Wallenbrock & Associates and Citadel Capital Management Group, Inc. for the benefit of investors. The court granted Mr. Donell the power to:

  • Oversee all aspects of the operations of Wallenbrock and Citadel;

  • Have access to and take control of all assets and property of the companies;

  • Have control of all accounts held at financial institutions;

  • Determine the value of the companies' assets and property;

  • Determine information concerning the investors; and

  • Take actions as necessary to prevent dissipation or concealment or to preserve funds and assets.

The Court further ordered Wallenbrock and Citadel to transfer to the Receiver all assets, funds and other property that they hold in foreign locations within ten days from the date of the order. The Receiver may be reached at (310) 207-8481.

In its Complaint, the Commission alleges that the Defendants knowingly or recklessly made misrepresentations or omitted to state material facts in the offer and sale of promissory notes issued by Wallenbrock. Since at least 1999, the Defendants have raised at least $170 million through the offer and sale of three-month promissory notes promising a 20% return (for each three-month period), which were generally automatically rolled over upon maturity, to at least 1,000 investors throughout the United States. Many investors hold the notes in individual retirement accounts. The Complaint alleges that Defendants told investors that the proceeds of the notes would be used in Wallenbrock's "factoring" business in which Wallenbrock purchases receivables of Malaysian latex glove manufacturers for 70% to 80% of the balance due on the receivables. When the accounts receivable are collected, investors receive a 20% return on their investment. The Complaint alleges that, in the offer and sale of the Wallenbrock notes, the Defendants made material misrepresentations to investors that include: (1) the claim that the Wallenbrock notes are secured by an undivided interest in the accounts receivable of Wallenbrock; (2) the risks associated with the investments; and (3) the assurance of profits.

In filings with the Court, the Commission alleged that appointment of a receiver was necessary because, among other things:

  • All evidence, including Wallenbrock and Citadel's bank records, points to the conclusion that Defendants are operating a Ponzi scheme;

  • Defendants have provided no documentary evidence that they are engaged in a receivables factoring business, as represented to investors. Instead, they only presented an unsupported declaration of the supposed Trustee of an offshore Chinese trust;

  • Investors were told that Wallenbrock itself engaged in a receivables factoring business, but were not told that Wallenbrock supposedly hired a foreign, offshore trust to engage in the factoring business, adding significant risk to the investment;

  • Investors were not told that profits have never been transferred to the United States, but exist only in the supposed ledger of a Chinese trust, and current payments to investors are made with funds deposited by new investors; and

  • Significant amounts of investor funds were transferred to Citadel to invest in high-risk start-up companies, without disclosure to investors. In the last three months alone, approximately $20 million in investor proceeds was loaned or invested by Citadel in third party entities.

The Court issued a temporary restraining order and asset freeze against the Defendants on January 28, 2002, and set a hearing on the Commission's motion for a preliminary injunction for April 1, 2002, at which time the parties will be allowed to present evidence supporting or opposing the motion.


Modified: 02/27/2002