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United States Securities and Exchange Commission

Litigation Release No. 18130 / May 12, 2003

Securities and Exchange Commission v. K.C. Smith, Civil Action No. 2:03-CV-173 (E.D. Tenn.)

SEC Sues Spammer Who Created Fictitious Government Entity, Used SEC Seal in Internet Investment Scam

The United States Securities and Exchange Commission today filed a complaint in the United States District Court for the Eastern District of Tennessee charging 20-year-old Oak Grove, Kentucky resident K.C. Smith with fraudulently raising $102,554 by falsely guaranteeing double-digit monthly returns on two websites and in approximately nine million spam e-mail messages. Without admitting or denying the allegations made by the Commission, Smith consented to an order requiring him to pay $107,510 in disgorgement and pre-judgment interest and enjoining him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The complaint alleges that between May 2002 and February 2003 Smith created websites for two fictitious investment opportunities, including a site for Kryer Financial, a fictitious investment company offering double-digit monthly returns on investments purportedly insured by the "United States Deposit Insurance Corporation" or "USDIC," another entity invented by Smith. Smith is also alleged to have created a website for the USDIC featuring the Commission's official seal and claiming that investments through Kryer Financial were fully insured against loss. According to the complaint, none of the money Smith raised through the sites was invested and none of it was insured; Smith used the money he raised to pay his personal living expenses.

The complaint further alleges that Smith promoted the fictitious investment opportunities in nine million spam e-mail messages and that he took careful steps to conceal his identity, including calling potential investors on disposable cellular telephones, using stolen service provider accounts to access the internet, and collecting investor funds through online payment services that maintain payee confidentiality.

The Commission acknowledges the assistance of the Texas State Securities Board in the investigation of this matter.

SEC Complaint in this matter

 

http://www.sec.gov/litigation/litreleases/lr18130.htm


Modified: 05/12/2003