U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18875 / September 9, 2004
SECURITIES AND EXCHANGE COMMISSION v. GARY L. MCNAUGHTON, INDIVIDUALLY AND D/B/A THE HAVEN EQUITY COMPANY, AND ANDREW K. LECH, Civil Action No. 1:03cv1249 (N.D. OH. Filed June 23, 2003) (Judge Dan A. Polster)
The Securities and Exchange Commission today announced that it has filed a First Amended Complaint for Injunctive and Other Equitable Relief ("Amended Complaint") in the above matter to add allegations of fraud against Defendant Andrew K. Lech ("Lech"). The Court has also entered, pursuant to his consent, an order of Final Judgment and Order of Disgorgement against Defendant Gary L. McNaughton, individually and d/b/a The Haven Equity Company ("McNaughton").
According to the Amended Complaint, from at least 1999 to June 2003, McNaughton raised at least $17 million from approximately 150 investors through the unregistered offer and sale of securities in the form of notes issued under the name of The Haven Equity Company. The Amended Complaint alleges that in selling these notes, McNaughton fraudulently guaranteed an annual return of 15% to 20% on a principal investment. McNaughton told investors that they would receive their returns in the form of monthly interest payments. The Amended Complaint alleges that McNaughton told investors that he would send their money to his wealthy childhood friend, Lech, who was supposed to use his expertise in options trading to generate the guaranteed returns. The Amended Complaint also alleges that although McNaughton told Lech that he was sending him Haven Equity investor funds, Lech did not invest the funds. Rather, Lech merely sent the investors' funds back to McNaughton who used them to pay other investors their monthly interest. According to the Amended Complaint, Lech knew that because the funds solicited from investors were not invested, it was impossible to realize the guaranteed returns.
According to the Amended Complaint, McNaughton and Lech also perpetuated the Haven Equity scheme by convincing investors to transfer their investment to Lech who offered his own notes ("Lech notes"). Under the Lech notes, Lech personally guaranteed Haven Equity investors their principal and interest. However, investors who executed Lech notes neither received their returns as guaranteed nor were repaid their principal. The Amended Complaint also alleges that Lech lacked the financial resources to fulfill the notes he guaranteed. Moreover, Lech used funds from bank accounts into which investor funds were deposited to pay numerous personal expenses. The Amended Complaint adds allegations of fraud against Lech based on his involvement in the scheme and seeks a permanent injunction, disgorgement of ill-gotten gains and a civil penalty against him. The previous orders against Lech based on his unregistered offer and sale of securities, including an order freezing assets, remain in effect.
On August 23, 2004, the Commission obtained, pursuant to McNaughton's consent, a Final Judgment and Order of Disgorgement which ordered that McNaughton was liable for disgorgement plus prejudgment interest of $6,228,351, representing profits he gained from his scheme. The Final Judgment required McNaughton to pay $11,815.24 and waived the remainder of the disgorgement based on his sworn financial statement which showed that he could not pay more. McNaughton's obligation to pay $11,815.24 will be satisfied by the same amount of funds currently frozen in a securities account belonging to Gary McNaughton.