SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17459 /April 5, 2002
SECURITIES AND EXCHANGE COMMISSION V. U.S. RESERVATION BANK & TRUST, HIGHER INVESTMENT TECHNOLOGIES, INC., GLOBAL-LINK CAPITAL MARKETS, L.L.C., EDWARD J. DRIVING HAWK, SR., LEO DRIVING HAWK, SR., JOHN M. ADAMS, EDMUND J. SMEDLEY, KENNETH S. HARRISON, WILLIAM J. HERISKO, THOMAS T. EMERTON, Defendants, and OYATE DEVELOPMENT, INC., OYATE ENTERPRISES, L.L.P., OYATE TRUST, RIVER WALK DEVELOPMENT, L.L.C., RINGTHUNDER RACING STABLES, INC., HPHC, INC., JAMES R. DRIVING HAWK, ORPHA JANE JOHNSTON, Relief Defendants (U.S.D.C., District of Arizona, Phoenix Division, Civil Action No. 02-CV-581)
SEC OBTAINS EMERGENCY COURT ORDERS HALTING $88 MILLION NATIONWIDE PRIME BANK SCAM AND PRESERVING ASSETS
On April 3, 2002, Judge Earl H. Carroll of the United States District Court for the District of Arizona granted the Commission's request for various emergency orders to halt a nationwide, $88 million investment scam, and to recover and conserve assets for the benefit of victims of the scam.
The Commission alleges in its complaint that the defendants, operating from Phoenix, Chicago and Houston, sold several bogus investments, including "prime" bank investments, treasury futures pools and certificates of deposit ("CDs") from a purported Native American chartered "bank."
The Court entered ex parte orders freezing assets, and requiring an accounting, the preservation of documents, and the repatriation of funds and assets that had been moved offshore. The Court also appointed a receiver to recover and conserve assets for the benefit of investors.
It its complaint, the Commission alleges that the U.S. Reservation Bank & Trust ("USRBT"), a non-incorporated entity granted business charters by the Rosebud Sioux based in Scottsdale, Arizona, and Global-Link Capital Markets, Ltd. ("Global-Link"), a limited liability company headquartered in Houston, Texas, raised $78 million through sales of an investment combining a "Leveraged Profit Sharing Agreement" ("LPSA") with an uninsured CD issued by USRBT.
According to the Commission, USRBT and Global-Link officials promised investors that their funds, while held in "safekeeping," would be "leveraged" to fund participation in "trading programs" involving United States Treasury notes and "bank debentures." The Commission further alleges that USRBT and Global-Link officials promised the investors that they would receive the greater of 20% of the profits from the trading programs or the interest on the USRBT-issued CD.
The Commission claims in its complaint that, in reality, USRBT never leveraged any investor funds for investment in trading programs; rather, USRBT used most of the investor funds to make "Ponzi" payments of interest and principal to the investors. In addition, according to the Commission, USRBT officials misused investor funds by spending over $4 million on salaries, commissions and personal and business expenses, including a horse racing stable and a purported casino development company.
The Commission also alleges in its complaint that in a USRBT spin-off scheme, Higher Investments Technologies, Inc. ("HIT"), a Nevada corporation headquartered in Mundelein, Illinois, fraudulently raised over $10.6 million from at least six investors or investment groups. According to the Commission, HIT offered investors an opportunity to participate in its "Capital Management Agreements" ("CMAs"), in which HIT, according to its representations to investors, would use their funds to trade in Treasury bond futures and then share the profits with the investors.
In reality, HIT used only about 10% of the investors' funds for such trading, and HIT misused most of the remaining investors' funds by spending them on its office expenses, including rent, supplies, computers, office repairs, payroll, and travel, according to the complaint.
The Commission staff coordinated its investigation and lawsuit with several other federal and state law enforcement agencies. The U.S. Attorney's Offices in Phoenix and Cincinnati filed civil forfeiture actions against USRBT and HIT, and seized $20 million and $10.2 million, respectively, against the two entities. The Commission, in its action, is seeking, among other things, recovery of additional funds from these and other entities and individuals involved in the scheme.
In its action, the Commission named as defendants, in addition to USRBT, Global-Link and HIT, the following individuals, and characterized them in its complaint as follows:
Edward J. Driving Hawk, Sr., a resident of Mesa, Arizona, is the president of USRBT, which he has controlled since at least May 1992. He is the father of Leo and James Driving Hawk.
Leo R. Driving Hawk, Sr., a resident of Higley, Arizona, is currently listed as vice president of USRBT, with which he has been associated since at least November 2001.
John M. Adams, a resident of Mundelein, Illinois, was the vice president of USRBT from at least 1996 to December 2001. While still associated with USRBT, Adams began raising money for HIT.
Edmund J. Smedley, a resident of Harrison, Ohio, has been associated with USRBT since at least January 1996. Smedley is currently a vice president of USRBT.
Kenneth S. Harrison, a resident of Houston, Texas, is the registered agent for Global-Link. Through his association with Global-Link, Harrison solicited investors for USRBT.
William J. Herisko, a resident of Palm Springs, California, solicited USRBT investors through his association with Global-Link.
Thomas T. Emerton, III, a resident of Palm Springs, California, is a principal of Global-Link. Emerton frequently communicated with USRBT investors under the auspices of Global-Link.
The Commission also named in its complaint as relief defendants, alleging they were unjustly enriched through receipt of investor funds, the following entities and individuals: Oyate Development, Inc., Oyate Enterprises, L.L.P., Oyate Trust, River Walk Development, L.L.C., Ringthunder Racing Stables, Inc., HPHC, Inc., James R. Driving Hawk and Orpha Jane Johnston (collectively, "relief defendants"). In granting the Commission's ex parte motion, the Court also froze investor funds in the possession or control of the relief defendants.
In its complaint, the Commission alleges that defendants USRBT and HIT violated 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 Commission also alleges that defendants Global-Link, Edward Driving Hawk, Leo Driving Hawk, Adams, Smedley, Harrison, Herisko and Emerton violated Sections 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. In addition to the emergency relief granted by the Court, the Commission seeks, as against the defendants, preliminary and permanent injunctions, disgorgement plus prejudgment interest, and civil money penalties. The Commission is also seeking disgorgement from the relief defendants.
Unscrupulous promoters continue to victimize the public with Prime Bank schemes. Accordingly, investors are advised to access the Commission's "Prime Bank" Investor Alert, which provides tips on how to avoid being a victim of these scams. The investor alert can be found on the Commission's web site, at www.sec.gov/divisions/enforce/primebank.shtml.
The Commission acknowledges the assistance and cooperation of several other government agencies in this matter, including the, the U.S. Customs Service in Phoenix, the U.S. Attorney's Offices in Phoenix and Cincinnati, and the Texas State Securities Board.