UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17434 / March 26, 2002
SECURITIES AND EXCHANGE COMMISSION V. BIG COUNTRY AGS, INC. D/B/A AGS, INC., ET AL., Defendants, Civil Action No. 3-02CV-606-L
SEC FILES CHARGES IN CONNECTION WITH FRAUDULENT INTERNATIONAL GOLD TRADING SCHEME.
On March 22, 2002, the Securities and Exchange Commission filed a securities fraud case in the United States District Court for the Northern District of Texas, Dallas Division, charging two companies and four individuals with selling unregistered securities and misleading investors in connection with an international gold trading deal. According to the Complaint, between February 2000 and January 2001, the defendants raised over $1.3 million by offering and selling unregistered promissory notes to investors in several states, and made false and misleading claims, and failed to disclose material facts, about the risks of the investment and the results the investors could expect. The SEC alleges that one of the participants in the deal stole most of the investors' money, resulting in substantial losses to investors.
In its complaint, the Commission charged the following defendants:
The SEC's complaint alleges that the defendants assured investors they could liquidate their principal upon thirty days notice; promised investors monthly returns of five percent to ten percent; and represented to investors that AGS could earn sufficient profits to be able to pay those returns, because AGS and an "associated" Ghanaian corporation - Africa Gemstone - would use the investors' money to buy gold bullion in Ghana and sell it in England at a 12% profit. The SEC further alleges that the defendants said the risk to investors was minimal, because of "built-in safety factors," such as oversight by the government of Ghana and verification of the investment by AGS, through investigation and through the AGS officers' experience as the venture's seminal investors.
In fact, according to the SEC's complaint, the AGS principals had not truly tested the investment, because they never attempted to liquidate their principal, and they received only a handful of interest payments. They essentially took Sarpong's word that their principal was safe, and that profits from gold trading would be sufficient for AGS to meet its obligations to investors. The Commission alleges that the Ghanaian government never monitored Sarpong's handling of investor funds and gold, and the AGS principals took virtually no steps to ensure or verify that Sarpong was using investor funds appropriately and in accordance with his promises to AGS.
The SEC further alleges that, although Sarpong agreed to trade gold for AGS on an ongoing basis - continually returning any sale proceeds to Ghana to purchase more gold - he instead diverted more than half of the sale proceeds (over $750,000) to his personal bank account. The SEC also alleges that Sarpong stole two gold shipments valued at approximately $250,000. As a result of Sarpong's thefts, the Commission contends, the investment was never profitable, AGS never earned sufficient profits to be able to pay the investors the returns it had promised them, and AGS is now unable to repay the investors' principal, to say nothing of doing so on thirty days notice.
The Commission's complaint charged that AGS, Gaither, Temple, Tuley, Africa Gemstone and Sarpong directly or indirectly sold unregistered securities, in violation of Sections 5(a) and 5(c) of the Securities Act of 1933; and committed securities 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 thereunder. In its Complaint, the Commission requested that the defendants be enjoined from future securities violations and be ordered to disgorge their illegal profits and pay civil money penalties.
Simultaneously with the filing of its action, the Commission accepted an offer of settlement from AGS, Gaither, Temple and Tuley, in which those defendants agreed, without admitting or denying the allegations in the Commission's Complaint, to the entry of an order enjoining them from further violations of the securities laws; to pay civil money penalties of $20,000 each; and to pay disgorgement of $200,000 in illegal profits, plus $22,840 in prejudgment interest. AGS, Gaither, Temple and Tuley also agreed to pay the costs of disbursing the disgorged profits and prejudgment interest to the bona fide holders of AGS promissory notes on a pro rata basis.