U.S. Securities and Exchange Commission
Litigation Release No. 18790 / July 23, 2004
Accounting and Auditing Enforcement Release No. 2060 / July 23, 2004
U.S. Securities and Exchange Commission v. Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson, U.S. District Court for the Southern District of Indiana, Cause No. IP 02-1118 C H/S (S.D. Indiana 2002).
SEC Wins Jury Verdict Against Former Presidents of Church Extension of the Church of God, Inc. and United Management Services, Inc.
The U.S. Securities and Exchange Commission (Commission) today announced that on July 15, 2004, a federal jury found James Perry Grubbs (Grubbs) and Shearon Louis Jackson (Jackson) liable for violating the antifraud provisions of the federal securities laws. The jury found that Grubbs and Jackson each, directly or indirectly, caused Church Extension of the Church of God, Inc. (Church Extension) offering circulars distributed to investors to contain false or misleading information and acted with fraudulent intent and negligence in doing so.
The verdicts were returned after a seven and a half day trial in federal court in the Southern District of Indiana, presided over by the Honorable David F. Hamilton. The trial resulted from a complaint the Commission filed on July 22, 2002 charging Church Extension and United Management Services, Inc. (UMS) and the former presidents of those entities, Grubbs and Jackson with fraudulently raising $85 million from the sale of investment notes to thousands of investors nationwide. Church Extension and UMS previously settled the Commission's charges on July 31, 2002.
In its complaint, the Commission alleged that in connection with the offer and sale of investment notes, defendants repeatedly made material misrepresentations and omitted to state material facts in Church Extension's solicitation and offering circulars, concerning, among other things, the primary use of investment note proceeds and the financial conditions of Church Extension and UMS. Specifically, the complaint alleged that Grubbs and Jackson, through Church Extension and UMS, embarked on a fraudulent scheme to cover up financial difficulties suffered by Church Extension and UMS from investors. The complaint also alleged that instead of using investment note proceeds primarily to fund church loans as stated in the offering circulars, investor proceeds were used to fund speculative real estate transactions and to make interest and principal payments to prior investors.
At trial, the jury determined that Grubbs and Jackson each violated Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Court will determine at a later date the appropriate sanctions against Grubb and Jackson. The Commission is seeking orders of permanent injunction, disgorgement plus prejudgment interest and civil monetary penalties against Grubbs and Jackson.