U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18932 / October 14, 2004
SECURITIES AND EXCHANGE COMMISSION v. LEARN WATERHOUSE, INC.; RANDALL T. TREADWELL; RICK D. SLUDER; LARRY C. SATURDAY; AND ARNULFO M. ACOSTA, Civil Action No. 04-CV-2037 W (LSP) (S.D. Cal.)
SEC OBTAINS ORDER HALTING $24.5 MILLION "PRIME BANK" PONZI SCHEME
The Securities and Exchange Commission ("Commission") filed an emergency action yesterday to halt an ongoing fraudulent Ponzi scheme perpetrated by five defendants in Florida, Georgia, and Texas in which at least $24.5 million was invested in fictitious "prime bank" instruments. The Commission's complaint charged: Learn Waterhouse, Inc. ("LWI"), a Texas corporation based in Jacksonville, Florida and Tyler, Texas; Randall T. Treadwell, 46, of Savannah, Georgia; Rick D. Sluder, 47, of Tyler, Texas; Larry C. Saturday, 57, of Savannah, Georgia; and Arnulfo M. Acosta, 41, of Pasadena, Texas. The Honorable Irma E. Gonzalez, United States District Judge for the Southern District of California (1) granted the Commission's emergency application for a temporary restraining order; (2) froze the defendants' assets; (3) prohibited the destruction of documents; (4) appointed a temporary receiver over LWI; (5) ordered accountings from the defendants; and (6) ordered the repatriation of defendants' assets held in foreign locations.
The Commission's complaint alleges that, from December 2003 through August 2004, the defendants raised at least $24.5 million from 1700 investors nationwide by conducting a fraudulent prime bank scheme. According to the complaint, LWI pooled investor funds to engage in "buy/sell" transactions in a "secret," "invitation only" bank trading program that generated investor returns ranging from 5% to 50% per month. The defendants represented that one such trading program purportedly earned investors 500% in just 60 days. The defendants also represented that an investor's principal was secured by a "pre-funded, cash-back instrument" issued by a top U.S. bank, which purportedly restricted LWI's bank trading program to completely risk-free transactions.
The complaint alleges that, contrary to the defendants' representations, they were instead promoting a fictitious prime bank trading program and operating a Ponzi scheme. The defendants paid investors and sales agents $17.5 million, but at least $8.2 million, or 46.9%, of those investor returns came from investor funds. The defendants also misappropriated at least $2.5 million in investor funds to support themselves and finance other businesses.
The Commission obtained an order temporarily restraining LWI, Treadwell, Sluder, Saturday, and Acosta from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order also temporarily restrains the defendants from violating the securities registration provisions of Section 5(a) and 5(c) of the Securities Act.
The Court's order provided that the temporary restraining order and asset freeze would remain in effect until November 1, 2004, at which time the Court scheduled a hearing on the Commission's motion for a preliminary injunction. In addition to the interim relief already granted by the Court, the Commission seeks a final judgment against the defendants enjoining them from future violations of the foregoing antifraud and securities registration laws, ordering them to disgorge all ill-gotten gains, and assessing civil penalties.
The Commission would like to acknowledge the substantial assistance of the United States Attorney's Office for the Southern District of California, the Federal Bureau of Investigation, the Arizona Corporation Commission, Alabama Securities Commission, the Florida Department of Financial Services, the Texas State Securities Board, and the Iowa Insurance Division's Securities Bureau.
For more information about prime bank frauds, visit the SEC's "Prime Bank Information Center" at http://www.sec.gov/divisions/enforce/primebank.shtml. To report suspicious activity involving possible fraud, visit http://www.sec.gov/complaint.shtml.