U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17583 / June 24, 2002
SEC v. HOUSE ASSET MANAGEMENT, L.L.C., HOUSE EDGE, L.P., PAUL J. HOUSE, and BRANDON R. MOORE, U.S. District Court for the Central District of Illinois Civil Action No. 02-2147 (McCuskey, J.)
On June 20, 2002, the Commission obtained an Order of Permanent Injunction and Other Equitable Relief ("Order of Permanent Injunction") against defendants House Edge, L.P. (the "Hedge Fund"), House Asset Management, L.L.C. (the "Adviser"), Paul J. House ("House"), and Brandon R. Moore ("Moore"), enjoining them from violating the anti-fraud and registration provisions of the securities laws. The Order of Permanent Injunction also freezes the assets of the Hedge Fund, the Adviser, House, and Moore pending the resolution of the appropriate amount of disgorgement and civil penalties, requires the defendants to give an accounting, prohibits document destruction and permits expedited discovery. The defendants consented to the Order of Permanent Injunction without admitting or denying the allegations of the Commission's complaint.
In its complaint, which was filed on June 20, 2002, the Commission alleged that, from at least March 2000 to the present, the defendants raised approximately $2.9 million from at least 60 investors through an unregistered offering of units in the Hedge Fund. The Commission alleged in its complaint that House and Moore controlled the Hedge Fund, which is located in Mt. Zion, Illinois. The complaint alleged that the defendants solicited investors and potential investors to invest their retirement savings in the Hedge Fund by making false and misleading statements in offering materials and on the Hedge Fund's website. The Commission's complaint alleged that the defendants told investors that the Hedge Fund had generated cumulative returns of 148% since its inception because it used investor proceeds to engage in a sophisticated securities trading strategy. The Commission alleged that the Hedge Fund had, in fact, suffered losses totaling at least $850,000 since its inception. Further, the complaint alleged that from at least May 2001 to June 2002, House and Moore borrowed approximately $425,000 from the Hedge Fund to purchase their personal residences and the Adviser's office building. The complaint alleged that the defendants failed to disclose to investors that they had used investor proceeds in this manner and that House and Moore had each emerged from personal bankruptcy in the last two years. The complaint also alleged that the defendants made false and misleading statements about House's background in the offering materials. The offering materials touted House's six years of experience in the securities industry, but failed to disclose that House was terminated as a registered representative for unauthorized sales of Hedge Fund units and that he was barred by the NASD for making unauthorized sales of Hedge Fund units and for providing the NASD with false information.
The complaint alleged that, by the above conduct, the Hedge Fund violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 7(a) of the Investment Company Act of 1940. The complaint also alleged the Adviser, House, and Moore violated 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 that the Adviser violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") and that House and Moore aided and abetted the Adviser's violation of Sections 206(1) and 206(2) of the Advisers Act.