U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18443 / November 3, 2003.
Securities and Exchange Commission v. David B. Henderson, et al. (U.S.D.C., Northern District of Texas, Dallas Division, Civil Action No. 3-03-CV-2661-K)
Court Halts Fraudulent Offering of Unregistered Securities and Freezes Assets For Benefit Of Defrauded Investors.
On October 31, 2003, the Commission filed an emergency action in United States District Court in Dallas, Texas, charging David B. Henderson, Independent Funding, Inc., Independent Funding Ltd./Nevada, and Jess L. Mercer with securities fraud in connection with an unregistered interstate offering and sale of $2 million in notes, largely to unsophisticated elderly investors. United States District Judge Ed Kinkeade entered a temporary restraining order halting the offering, and also issued orders to conserve assets for the benefit of the scheme's victims, including an asset freeze and an accounting.
Named as defendants are:
The Commission also named in its complaint as relief defendants, seeking return of investor funds unjustly received, the following entities and individuals:
The Commission alleges that David Henderson, his companies, and Mercer sold, and are selling, the notes using false, misleading and materially incomplete offering materials. For example, according to the complaint, the offering materials represent that note proceeds will be used to purchase secured automobile loans from third parties, and that these loans will secure the notes. The materials further promise that the notes are "safe" and "liquid," and claim that they are not securities. Mercer, the complaint asserts, parrots these claims to his investors and then goes a step farther, describing the notes as "risk free" and "guaranteed."
The Commission contends, however, that these representations are false. The Complaint alleges that, rather than purchase automobile loans, David Henderson and his companies primarily have used investor funds to, among other things, pay Todd Henderson and his companies large "servicing" and "consulting" fees; make loans to Todd Henderson and other third parties; pay personal expenses; and repay the holders of an earlier series of securities Henderson issued in the late 1990s. In addition, the complaint alleges that Henderson uses funds from new investors to make "Ponzi" payments to existing investors. Moreover, the Commission contends that the notes are not "risk free" or "guaranteed" but, rather, are fraught with great risks. None of these matters, the Commission contends, have been disclosed to investors.
The Commission's complaint charges David Henderson, Independent Funding, Inc., Independent Funding Limited and Mercer with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Mercer is also charged with violating Section 15(a) of the Exchange Act by acting as an unregistered broker. The complaint seeks against these defendants a temporary restraining order, preliminary and permanent injunctions, accountings, disgorgement with prejudgment interest, civil money penalties, and, except as to Mercer, asset freezes and the appointment of a receiver. The Commission also seeks asset freezes, disgorgement and accountings from the relief defendants because they were unjustly enriched from the fraudulent offerings. The complaint also seeks an order prohibiting the destruction of documents and expediting discovery.
The Commission acknowledges the assistance of the Federal Bureau of Investigation, the Division of Securities of the Utah Department of Commerce, the Idaho Department of Finance and the Arizona Securities Commission.