U.S. Securities and Exchange Commission
Litigation Release No. 18415 / October 16, 2003
Securities and Exchange Commission v. The Rose Fund, LLC, The Rose Fund, Inc., TRF Holdings, Inc., Michael Alexander, Paul E. Nelson, William Wright, Rose Collections, Inc., Pacific Video Network, Inc., Resort Management Co., Inc., Web Inventions, Inc., Who Banging, Inc., and YAE, Inc., United States District Court for the Northern District of California, San Francisco Division, Civil Action No. 03-4593-WHA.
SEC Obtains Order Freezing Assets In San Diego-Based Fraud
On Friday, October 10, 2003, the Securities and Exchange Commission sued the San Diego-based Rose Fund for running a fraudulent scheme that raised at least $3.3 million through advertisements placed in major metropolitan newspapers throughout California. According to the Commission, Paul E. Nelson and William Wright of San Diego, and Michael Alexander of Solana Beach, California, sold investments in a purported mortgage lending business that guaranteed a 12% annual rate of return to investors. The Commission alleges that these individuals misappropriated at least $1 million of investor funds, with Alexander, the President of the company that managed the investments, spending hundreds of thousands of dollars at a horse racing track located a few minutes from the company's office. At the Commission's request, on Friday, October 10, the Honorable William H. Alsup of the United States District Court for the Northern District of California issued a temporary restraining order against the Rose Fund LLC, the Rose Fund Inc., TRF Holdings, Inc., Michael Alexander, Paul Nelson, and William Wright, restraining them for committing future violations of certain provisions of the federal securities laws and freezing the assets of these defendants as well as the assets of relief defendants Rose Collections, Inc., Pacific Video Network, Inc., Resort Management Co., Inc., Web Inventions, Inc., Who Banging, Inc., and YAE, Inc., pending a further hearing on the Commission's motion for a preliminary injunction and appointment of a receiver. The Court also deferred ruling on the Commission's request that a receiver be appointed to manage the Rose Fund until the hearing.
The Commission's complaint alleges that, beginning in early 2003, the Rose Fund ran ads in about a dozen major California newspapers promising 12-15% annual returns on an investment described as "safe," "IRA/401K approved," and "secured by California real estate." Investors responding to the ad were told by salesperson Wright that the Rose Fund's mortgage lending business was 30 years old and outperformed the stock market. These representations were false. According to the Commission, the company was only formed in late 2002 and did not make any home loans until mid-2003. Even then, the investments were risky, had not been approved by the IRS or any other government agency, and only a portion of the funds went towards actual home loans.
By September 2003, the Rose Fund and a related entity, TRF Holdings, had raised at least $3.3 million from over 100 investors in California and nationwide. The Commission alleges that, in order to dupe investors into believing their investments were safe and profitable, the Rose Fund made payments representing purported interest from the company's mortgage business. In reality, the money came from investors' own funds - a classic Ponzi scheme.
The Commission's complaint charges the Rose Fund, TRF Holdings, and their manager, Rose Fund, Inc., as well as Nelson, Wright, and Alexander, with violating the antifraud and registration provisions of the federal securities laws, specifically Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission also sued Wright for acting as an unregistered securities broker in violation of Section 15(a) of the Exchange Act. The Complaint seeks permanent injunctions prohibiting future violations of the securities laws, disgorgement, and civil penalties.