U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18868 / September 2, 2004
SEC v. Charles L. Harris, Tradewinds International, L.L.C. and Tradewinds International II, L.P., Civil Action No. 04 C 5725 (N.D. Ill, filed September 1, 2004)
SEC OBTAINS ASSET FREEZE AND ORDER PRESERVING ALL DOCUMENTS AGAINST CHARLES L. HARRIS, TRADEWINDS INTERNATIONAL, L.L.C. AND TRADEWINDS INTERNATIONAL II, L.P.
The U.S. Securities and Exchange Commission announced that on September 1, 2004, a federal district court in Chicago entered an order freezing the assets of Charles L. Harris, of Winnetka, Illinois, Tradewinds International II, LP and Tradewinds International, L.L.C. based on their fraudulent offer and sale of securities in violation of federal securities laws. The Court also ordered the Defendants to preserve all documents. The Commission's Complaint and Motions further request the entry of orders of temporary, preliminary and permanent injunction, disgorgement, civil penalties and other relief against the Defendants. The Court has set a hearing for Tuesday, September 7 on the other relief sought.
The Commission coordinated its investigation with the Commodity Futures Trading Commission. The CFTC simultaneously filed an action in the same court and has obtained an order of similar relief against Harris and Tradewinds L.L.C. for fraud under the Commodity Exchange Act.
The Commission's Complaint alleges that Defendants fraudulently raised at least $10 million from at least 30 investors for Tradewinds II, a private investment "hedge fund," since July 2001. The Complaint further alleges that the Defendants made false and misleading statements to investors regarding Tradewinds II's past rates of return, net asset value and the use of investor funds.
The Complaint alleges that, in July 2004, Harris sent certain investors e-mails and a DVD in which he confessed that he had falsely reported a 12% annual profit to investors in Tradewinds II for 2003, when in reality, Tradewinds II lost a significant amount of money. Harris also claimed to have fled the country and to have taken the claimed remaining investor assets offshore.
The Complaint also alleges that, while Harris told investors in 2003 that Tradewinds II's net asset value was between $18 and $23 million, trading account statements reflect a total value of at most $1.1 million during 2003, and approximately $30,000 at the end of the year.
The Complaint further alleges that, contrary to representations to investors, Harris used investor funds for purposes other than trading. The Complaint alleges that, in 2003 and 2004, at least $2.4 million of investor funds were never transferred to the trading accounts, but were used instead for Harris' personal and business expenses and to repay investors at artificially inflated rates, while Tradewinds II secretly incurred losses.
The Court's Order finds that there is good cause to believe that Defendants have violated and will continue to engage in violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder unless immediately restrained and enjoined.