SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17454 / April 2, 2002
SEC v. Terry L. Dowdell, et al., Civil Action No. 3:01CV00116 (W.D. Va.)
On March 14, 2002, following a three-day hearing, the Honorable James H. Michael, Jr., Senior U. S. District Judge for the Western District of Virginia, issued a preliminary injunction against three participants in a Ponzi scheme that raised over $50 million. The SEC alleged that Defendants Vavasseur Corporation, a Bahamian corporation, Kenneth G. Mason, an attorney residing in Wilmette, Illinois and Birgit Mechlenburg, a resident of Lenox, Massachusetts, offered fictitious "prime bank" securities that they claimed would provide virtually risk-free returns of 4 percent per week for 40 weeks per year - up to 160% per year. Judge Michael had previously issued a preliminary injunction by consent against Defendants Terry L. Dowdell and Dowdell, Dutcher & Associates, Inc., both of Charlottesville, Virginia.
The Court found that the SEC showed it was likely to prove that the Vavasseur trading program being marketed by Dowdell, Mason and Mechlenburg was fraudulent. Although the defendants represented that funds invested in Vavasseur would be placed in trading accounts in the Bahamas and profits would be generated by trading activity, the Court found that investor funds were never transferred to such accounts and that Vavasseur engaged in no trading.
The Court found that the SEC showed it was likely to prove that Vavasseur Corporation, Mason and Mechlenburg engaged in and are likely to engage in violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder..
The Court found that the SEC showed it was likely to prove that Mason was reckless in recommending the Vavasseur program. The Court stated that the danger of the Vavasseur program was so obvious that Mason must have been aware of it. The Court found that Mason's due diligence was inadequate, particularly where Mason admitted to knowing of no other successful high yield program, knowing that Dowdell had no track record in program management, and knowing that Vavasseur bore striking similarities to the "prime bank" schemes about which the SEC had issued an investor alert.
The Court also found that the SEC showed it was likely to prove that Mechlenburg was reckless in promoting the Vavasseur program. Unlike Mason, who expressed some doubt about the legitimacy of Vavasseur, Mechlenburg stated that she continues to believe that Vavasseur is a legitimate trading program. In the mid-1990's Mechlenburg was permanently enjoined from violating certain sections of the federal securities laws and barred from association with any broker or dealer. The Court found that, regardless of whether it was the result of deliberate ignorance or remarkable gullibility, her conduct rose to the level of recklessness. The Court also found that the SEC showed it was likely to prove that Mechlenburg unlawfully acted as an unregistered broker-dealer, in violation of Section 15(c) of the Exchange Act and Rule 15c1-2 thereunder.
In addition, the Court found Mason to be in civil contempt because he withdrew $5,000 from his business bank account shortly after being served with the TRO and asset freeze. The Court ordered Mason to return the sum of $5,000 to his bank account within the next two months.
For more information on prime bank fraud, see the investor information section of the SEC's web-site, www.sec.gov.
See previous Litigation Release No. 17242, November 19, 2001.