U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 18953 / November 1 2004

SEC v. Frederick J. Gilliland, et al., Case No. 3:02-CV128 (W.D.N.C. ).

COURT AWARDS JUDGMENT AGAINST NORTH CAROLINA PROMOTOR OF $29 MILLION PRIME BANK SCHEME

On October 26, 2004, the United States District Court for the Western District of North Carolina entered final judgment against Frederick J. Gilliland, enjoining him from further violations of antifraud, and securities and broker-dealer registration provisions of the federal securities laws, Sections 5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The judgment directs Gilliland to disgorge $9.4 million, representing Gilliland's profits gained through the prime bank scheme, plus $635,179 in prejudgment interest. The judgment also directs Gilliland to pay a $110,000 civil penalty.

The Commission's complaint alleged that Frederick Gilliland sold more than $29 million in interests in a succession of non-existent prime bank trading programs to more than 200 investors between at least mid-1997 through November 1998. In connection with his scheme, the complaint alleged that Gilliland misrepresented and omitted material facts concerning: (1) the existence of the trading programs; (2) the use of investor funds; (3) the promised return; and (4) the safety of the funds invested. For example, the investment agreements that Gilliland's investors typically signed referred to the investment programs as a "high-yield banking transaction." Most of these programs guaranteed rates of return ranging from 30% per month to as high as 130% per 10 days. According to the Commission's complaint, Gilliland also misrepresented that investments were safe because they would be fully collateralized by U.S. Treasury bills.