Securities and Exchange Commission
Litigation Release No. 17908 / December 20, 2002
SEC Files "Prime Bank" Securities Fraud Case Against Former Stockbroker and His Company
Securities and Exchange Commission v. William R. Kerr and China Investment Group, Ltd., Civil Case No. 02-9659 (U.S.D.C., C.D. Ca.)
On December 19, 2002, the Securities and Exchange Commission filed a securities fraud case in the United States District Court for the Central District of California charging a former stockbroker and his California company with promoting a fraudulent "prime bank" investment scheme. The defendants are William R. Kerr of Los Angeles, California and China Investment Group, Ltd., a British Virgin Islands corporation headquartered in Los Angeles.
The Commission's complaint alleges a massive securities fraud orchestrated by William R. Kerr and his company, the China Investment Group, Ltd. ("CIG"). According to the complaint, Kerr induced more than sixty investors throughout the United States, as well as in Canada, to invest over $12 million in his fraudulent investment program that he falsely promised would yield exorbitant returns within a matter of weeks or months. The complaint further alleges that, in furtherance of this scheme, Kerr posed as a wealthy, politically connected businessman and made numerous false and materially misleading representations to his investor victims and to various intermediaries who he knew would echo his false claims to other investor victims. These false and materially misleading representations, according to the complaint, included claims (i) that Kerr had control of a $200 million trust; (ii) that Kerr could use the trust as leverage to trade in medium term bank notes ("MTNs"); (iii) that this MTN trading would yield profits of more than 13,000% of the amount invested; (iv) that Kerr's company, CIG, conducted the MTN trading; (v) that the World Bank supported Kerr's trading program; and (vi) that Kerr's investment program was safe and was backed by Kerr's personal guarantee. Further, the complaint alleges that, instead of investing his victims' funds as he had represented, Kerr misappropriated it, and failed to return either profits or principal to his investor victims.
The Commission's complaint charges both defendants with securities fraud, sale of unregistered securities, and acting as an unregistered broker-dealer, in violation of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rule 10b-5. The Commission is seeking injunctions, disgorgement of ill-gotten gains (with interest), and civil penalties against both defendants.
In a related matter, the United States Attorney's Office for the Central District of California announced Kerr's agreement to enter a guilty plea to mail fraud and securities fraud charges stemming from the same fraudulent scheme that is the subject of the Commission's complaint. See United States v. William R. Kerr, No. CR 02-1281 (C.D. Cal.). The Commission's related case against four Virginia unregistered brokers who solicited investor victims for Kerr's fraudulent program as well as other, similar fraudulent programs, announced previously, is pending. See Lit. Rel. No. 17281 (December 19, 2001).
The Commission wishes to thank the United States Attorney's Office for the Central District of California, the Los Angles Office of the Federal Bureau of Investigation, the California Department of Corporations, and the Division of Securities of the Utah Department of Commerce for their assistance in connection with this matter.
This case is part of the SEC's continuing effort to combat prime bank fraud and to alert the public to the risks posed by these phony instruments. The risks of this type of fraud and warnings about how to avoid it are spelled out in the Interagency Advisory: Warning Concerning "Prime Bank" Notes, Guarantees, and Letters of Credit and Similar Financial Instruments (October 21, 1993), and other information which is available through the SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml.