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U.S. Securities and Exchange Commission

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

LITIGATION RELEASE NO. 17920 / January 7, 2003

SECURITIES AND EXCHANGE COMMISSION v. ASSET RECOVERY AND MANAGEMENT TRUST, S.A., FRANK RAY JOHNSON, MILTON E. VAUGHN, AND CARLOS FERNANDEZ ALFARO, C.A. No. 02-W1372-N (M. D. Ala).

SEC FILES INJUNCTIVE ACTION AND OBTAINS ASSET FREEZE AGAINST FRANK R. JOHNSON, MILTON E. VAUGHN AND CARLOS FERNANDEZ ALFARO IN CONNECTION WITH FRAUDULENT PRIME BANK OFFERING

The Securities and Exchange Commission ("Commission") today announced the filing on December 16, 2002 of civil fraud charges against Asset Recovery and Management Trust ("ARM Trust"), a Costa Rican entity, Frank R. Johnson and Milton E. Vaughn, residents of Alabama, and Carlos Fernandez Alfaro, a Costa Rican national, in connection with a fraudulent prime bank offering scheme that raised at least $900,000 from investors between November 1999 and July 2000. The action was filed in the U.S. District Court for the Middle District of Alabama and on December 18, 2002, after a hearing, the court ordered the defendants' assets frozen.

According to the Commission's complaint, the defendants targeted victims of previous scams by claiming ARM Trust would help recover their lost funds, and then lured them into joining ARM Trust's fictitious trading programs. In particular, Johnson, who in 1999 had been convicted of defrauding investors in another prime bank scheme called the International Benevolent Fund Trust ("IBFT"), directed his IBFT victims to ARM Trust. While awaiting sentencing for his role in the IBFT fraud, Johnson told his IBFT victims that he had retained ARM Trust to help them recover the money they lost in the IBFT trading programs. Shortly thereafter, ARM Trust sent those investors informational material, and offered them the opportunity to participate in ARM Trust's trading programs. ARM Trust claimed that its trading programs were safe because investor funds remained with ARM Trust and could be withdrawn at any time. After gaining the victims' trust and convincing them to join ARM Trust's fictitious trading programs, the defendants stole the investors' funds.

The Commission alleges in its complaint that Johnson, Vaughn and Alfaro, through ARM Trust's website and other communications, promised investors exorbitant returns through high yield trading programs operated by ARM Trust. According to the Commission's complaint, these representations were false because such high yield trading programs do not exist and the defendants misappropriated or otherwise failed to return investors' funds. The complaint alleged that, until as late as January 2002, defendants continued to lull investors into believing the trading programs were making substantial money. As a result of the defendants' representations, between November 1999 and July 2002, the defendants defrauded hundreds of U.S. investors of at least $900,000.

The Commission alleged in its complaint that defendants ARM Trust, Johnson, Vaughn and Alfaro violated sections 5(a), 5(c) and 17(a) of the Securities Exchange Act of 1933 and section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking injunctive relief, disgorgement and civil penalties against all defendants.

Contact: Kate Poverman, Assistant District Administrator, 617-424-5936

 

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/lr17920.htm

Modified: 01/10/2003