U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18962 / November 5, 2004
SECURITIES AND EXCHANGE COMMISSION v. THE ROSE FUND, LLC, THE ROSE FUND, INC., TRF HOLDINGS, INC., MICHAEL ALEXANDER, PAUL E. NELSON, WILLIAM WRIGHT, ROSE COLLECTIONS, INC., PACIFIC VIDEO NETWORK, INC., RESORT MANAGEMENT CO., INC., WEB INVENTIONS, INC., WHO BANGING, INC., AND YAE, INC, United States District Court for the Northern District of California, San Francisco Division, Civil Action No. 03-4593-WHA.
COURT ENTERS JUDGMENTS IN FRAUDULENT MORTGAGE LENDING SCHEME
The Securities and Exchange Commission announced that on November 2, 2004, United States District Judge William H. Alsup in San Francisco entered judgment against Paul Nelson of Bothell, Washington for his role in a phony mortgage lending scheme offered under the name "The Rose Fund."
On September 17, 2004, the Court found that Nelson, William Wright of Los Angeles, California, and others raised a total of $4.2 million from investors in The Rose Fund and a related company, TRF Holdings, by misrepresenting that they would use the money to make home loans. The Court found that defendants took most of the money for themselves. The Court enjoined Wright from future violations of the securities laws, ordered him to disgorge $654,057 in ill-gotten gains (with interest) and pay a $50,000 penalty. The Court enjoined Nelson from future violations of the antifraud provisions of the securities laws and ordered him to pay a $10,000 penalty. Following trial, the Court also ordered Nelson to disgorge $93,987.
A third defendant, Michael Alexander of Solana Beach, California, consented to entry of judgment against him prior to trial without admitting or denying the Commission's allegations against him. The Court enjoined Alexander from future securities law violations, ordered him to disgorge $1.29 million (with interest) and pay a $500,000 penalty.
On October 10, 2003, the Securities and Exchange Commission sued Nelson, Wright, and Alexander for running a fraudulent mortgage lending scheme. The Commission alleged that the defendants advertised The Rose Fund in major metropolitan newspapers throughout California, promising investors a 12 to 15% annual rate of return secured by California real estate. The advertisements also described the investments as "safe," "IRA/401K approved," and "secured by California real estate." The Commission also alleged, and the Court later found, that defendants duped investors by making purported interest payments to investors from money obtained from new investors - a classic Ponzi scheme.
The Court appointed a receiver to take control of The Rose Fund LLC, The Rose Fund, Inc. and TRF Holdings, Inc., all based in San Diego, California. The receiver later consented to the entry of judgment against each of the entities. A number of other businesses named in the action as relief defendants were later ordered to turn over funds to the receiver and were dismissed from the case. The receiver has applied to the Court for orders to return funds to investors.
The Commission's complaint charged the Rose Fund, TRF Holdings, and their manager, Rose Fund, Inc., as well as Nelson, Wright, and Alexander, with violating the antifraud and registration provisions of the federal securities laws, specifically Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission also sued Wright for acting as an unregistered securities broker in violation of Section 15(a) of the Exchange Act.