UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 18470 / November 18, 2003
Securities and Exchange Commission v. IPIC International, Inc., et al. Civil Action No. 3:03-CV-2781-P, United States District Court for the Northern District of Texas (Dallas Division).
SEC HALTS MASSIVE PONZI SCHEME THAT TARGETED EVANGELICAL CHRISTIAN CONGREGATIONS BY FILING EMERGENCY CIVIL ACTION
Federal Criminal Authorities Unseal Indictments, Arrest Multiple Defendants
On November 17, 2003, in coordination with federal criminal authorities and state regulators, the Commission filed an emergency action in United States district court in Dallas to halt an offering of unregistered securities through which the defendants have fraudulently raised at least $160 million from investors associated with evangelical Christian congregations. In its complaint, the Commission alleged that the defendants deceived investors, promising to generate investment returns that would benefit Christian ministries through merchandising and manufacturing businesses; but in fact, according to the Commission, the defendants invested little, if any, of the investors' money in that way, and instead used it to make ponzi payments to other investors and support their own extravagant lifestyles by purchasing items such as homes, a yacht, and a helicopter. Also on November 17, U.S. District Judge Jorge Solis granted the Commission's motion for a temporary restraining order, an asset freeze, and the appointment of a receiver to collect and preserve investors' assets.
In its action, the Commission charged the following defendants:
- IPIC International, Inc. (a/k/a International Product Investment Corp.) ("IPIC"), a Nevada corporation with its principal place of business in Ontario, California, that purports to be in the business of manufacturing, buying and selling a variety of commercial goods, including bottled water, toys, paint, furniture, decorative items, and railroad ties;
- IPIC Atlantic LLC, a Florida corporation with its principal place of business in Orlando, Florida, that markets IPIC to potential investors;
- Home Recovery Network, Inc. ("HRN"), a Delaware corporation with its principal place of business in Montclair, California, which purports to be a "division" of IPIC, and purports to be in the business of buying and selling real estate;
- Gregory Setser, age 47, of Alta Loma, California, the founder, president and CEO of IPIC;
- Cynthia Setser, age 47, of Alta Loma, California, Gregory Setser's wife and alleged business partner, and IPIC's treasurer;
- Charnelle Setser, age 21, of Rancho Cucamonga, California, Gregory Setser's daughter-in-law and IPIC's office manager;
- Deborah Setser, age 38, of Rancho Cucamonga, California, Gregory Setser's sister and vice president of Home Recovery Network;
- Charmaine Sears, age 44, of Lake Elsinore, California, Charnelle Setser's mother and Gregory Setser's assistant; and
- Torsten Thomas Henschke, age 48, of Orlando, Florida, executive international director of IPIC Atlantic.
In its complaint, the Commission alleges that the defendants raised at least $160 million within the past three years by offering and selling "joint venture agreements" to evangelical Christian leaders, members of evangelical congregations, and affiliated organizations. The Commission further alleges that the joint venture agreements typically provided that: investor funds would be used to purchase various goods or real estate; IPIC and HRN were responsible for re-selling the goods or real estate; and profits from re-selling the goods and real estate would be shared with investors. According to the Commission, no registration statement has been filed with the Commission as to any of the joint venture agreements.
The Commission further alleges that, in connection with the offer and sale of these investment programs, the defendants, at various times, represented to investors that: (1) their principal was not at risk; (2) they would receive a 25% return on their investment within three to six months; (3) they would receive monthly returns ranging from 5.35% to 6.75%; and (4) only 1 in 10,000 deals resulted in a loss. In addition, according to the Commission, investors were led to believe that IPIC had bought billions of dollars worth of goods and sold them to large, well-known retailers, such as Mikasa, Inc., Michaels Stores, Inc., Costco Wholesale, Inc., Garden Ridge Corp., J.C. Penney Co., and Pier 1 Imports, Inc.
In fact, however, according to the Commission, the defendants were actually perpetrating a massive ponzi scheme and continuing to solicit money from unsuspecting investors, including evangelical Christian congregations. For example, the Commission alleges that IPIC's bank statements show no evidence of the commercial transactions that the joint venture agreements describe: neither outgoing payments to vendors nor incoming payments from customers appear in the bank records. Instead, according to the Commission's complaint, the bank records reflect apparent ponzi payments to investors, as well as overseas transfers of funds and purchases of luxury items (e.g., a yacht, homes and a helicopter). Furthermore, the Commission alleges that none of the retailers who IPIC identified as customers have any record of purchasing goods from IPIC or Greg Setser.
Finally, according to the Commission, as recently as October 10, 2003, IPIC was offering its investors the opportunity to convert their joint venture agreements into IPIC "founder's shares," which were supposedly going to be publicly traded on Nasdaq within 90-120 days; but, as of October 23, 2003, IPIC had not filed an application for listing with Nasdaq.
The Commission also named in its complaint, as relief defendants (seeking return of investor funds they unjustly received and company records) the following individuals associated with IPIC:
- Eva Setser, age 68, of Alta Loma, California, Gregory Setser's mother and IPIC's corporate secretary; and
- Larry Kuncl, age 47, of Upland, California, Gregory Setser's brother-in-law and president of Crossties Technology, Inc., a purported manufacturing concern that operates out of IPIC's Ontario, California office.
The Commission alleges in its complaint that the defendants violated 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 and Rule 10b-5 thereunder. In addition to seeking emergency relief as described above, the Commission is also seeking orders of permanent injunction, disgorgement plus prejudgment interest, and civil money penalties. The Commission is also seeking asset freezes and disgorgement against the relief defendants, because they hold title to, or received proceeds from the sale of, assets allegedly acquired with investor funds.
On November 18, 2003, the United States Attorney for the Northern District of Texas unsealed a securities fraud and money laundering indictment against Gregory, Cynthia, Charnelle and Deborah Setser, and Henschke, and agents for the FBI and IRS arrested all of those individuals.
The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Northern District of Texas, the Federal Bureau of Investigation, the IRS Criminal Investigation Division, and the Texas State Securities Board.