Securities and Exchange Commission
Litigation Release No. 18056 / March 31, 2003
SEC Files Enforcement Action Against Five Individuals for Fraudulent Investment Scheme
Massachusetts Commercial Airline Pilot and Long Island Physician Among Those Charged with Fraud
SEC v. Jack Calvin, et al., Civil Action No. 03-10586-MEL (D. Mass.) (U.S. District Court for the District of Massachusetts - Filed March 31, 2003)
The Securities and Exchange Commission announced today that it filed a civil fraud action against five individuals involved in a fraudulent investment scheme that raised at least $2.8 million from more than 120 investors. According to the Commission's complaint, Jack Calvin of Ozark, Missouri organized the fraudulent scheme. The complaint alleges that defendants Byron Nernoff of Roslyn Heights, New York; James Proffitt of Tomkinsville, Kentucky; Daniel Wayne Adams of Sandwich, Massachusetts; and Charles Timson of Greenlawn, New York each solicited investors in exchange for commissions.
According to the Commission's complaint, the defendants offered and sold securities in a financial instrument trading program called Growth Benefit Systems that was completely fictitious. Defendants allegedly solicited investors using misrepresentations typical of "Prime Bank" investment frauds, telling investors that their funds would be pooled to purchase letters of credit that would be traded by top-rated banks and promising returns as high as 20% per month. The defendants also allegedly told investors that their principal would be guaranteed. In fact, according to the complaint, there are no such trading programs and defendants' representations to investors were completely false.
Instead of investing the funds he obtained, Calvin used investor money to pay commissions to the four defendant salespersons. Nernoff and Proffitt allegedly received more than $200,000 each. Adams allegedly received $51,386 and Timson $58,151. Calvin also used investor money to make luxury purchases for himself and his daughter, including a house, car, motorcycle, hot tub and furniture. The Commission also alleged that Calvin paid for his daughter's tuition at cosmetology school with investor proceeds.
According to the complaint, after Calvin spent the investors' funds, he made numerous false statements to investors to explain why they had not received the purported profits from the trading program, including that the events of September 11, 2001, somehow delayed fund transfers.
During the Commission's investigation, Calvin and Timson, a Long Island physician, failed to comply with Commission subpoenas. The Commission filed subpoena enforcement actions which resulted in court orders requiring Calvin and Timson to provide testimony to the Commission staff.
Adams, a commercial airline pilot, also failed to comply with the Commission subpoena issued to him. Instead Adams, who was born in Kansas, sent notice that he had "expatriate[d] from the corporate United States." Adams further stated that he was "no longer a citizen of the United States." Ultimately, Adams appeared for testimony and produced documents.
According to the complaint, Calvin, Nernoff, Proffitt, Adams and Timson violated the antifraud, securities registration, and broker registration provisions of the federal securities laws, including Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks disgorgement of all funds fraudulently received by the defendants and by Jack Calvin's daughter Shannon Calvin, who was named as a relief defendant, plus prejudgment interest, and civil monetary penalties from each of the defendants.
Unscrupulous promoters continue to victimize the public with Prime Bank schemes. Accordingly, investors are advised to access the SEC's "Prime Bank" Investor Alert that provides tips on how to avoid being a victim of these scams. The investor alert can be found on the SEC's web site at www.sec.gov/divisions/enforce/primebank.shtml.