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U.S. Securities and Exchange Commission

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 18472 / November 19, 2003

SECURITIES and EXCHANGE COMMISSION v. DONNE CORPORATION, SHERMAN S. SMITH, SHAWN SMITH, and BRUCE ANDERSON (Case No. C 02-04238 SC) (N.D. Cal.)

COURT PERMANENTLY ENJOINS MINISTER, HIS SON AND COMPANY, FOR ORCHESTRATING $4 MILLION PONZI SCHEME

The Securities and Exchange Commission ("Commission") announced that, on October 20 and 27, 2003, the U.S. District Court for the Northern District of California permanently enjoined Sherman S. Smith of Napa, California, his now-defunct company, Donne Corporation, and his son, Shawn Smith, of Mead, Washington, for their respective roles in a $4 million ponzi scheme. The defendants consented to the permanent injunction without admitting or denying the allegations in the Commission's complaint.

The Commission's complaint alleged that, from January 1998 through January 2001, Sherman Smith targeted religious individuals, whom he had met through his work as a pastor and investment adviser, to raise approximately $4 million through the unregistered and fraudulent sale of Donne Corporation's stock. Sherman Smith, Shawn Smith and others raised the $4 million, the Commission's complaint alleged, by making false and misleading statements about Donne's financial status, projected earnings and investment returns, and use of investor funds. Additionally, the complaint alleged that some Donne investors were promised and paid a guaranteed return of 12% per year on their investment. The source of these returns, unbeknownst to investors, was other investor money received from new sales of Donne stock. Investor proceeds, the complaint alleged, were also used to pay for unrelated expenses, including the construction of Sherman Smith's Kentucky home, the purchase of several cars, and the production of a movie.

Donne, Sherman Smith and Shawn Smith consented to the entry of a judgment permanently enjoining them from future violations of the registration and antifraud provisions of the federal securities laws, 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. Sherman Smith also consented to a permanent injunction enjoining him from future violation of the investment adviser antifraud provisions, Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Court will address any payment by Sherman Smith and Shawn Smith of disgorgement, prejudgment interest and penalty at a future date.

In a related criminal action, Sherman Smith pled guilty in the U.S. District Court for the Northern District of California on June 7, 2003, to one count of securities fraud relating to the ponzi scheme. Sherman Smith is scheduled to be sentenced on December 5, 2003.


http://www.sec.gov/litigation/litreleases/lr18472.htm


Modified: 11/19/2003