U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19008 / December 22, 2004
Securities and Exchange Commission v. Paul V. Degenhart, University Club Group, Inc. and UC Properties, LLC, Civil Action No. 2:04-CV-23267 (DSC December 14, 2004)
The Securities and Exchange Commission (Commission) announced that on December 14, 2004, it filed a Complaint in the United States District Court for the District of South Carolina against defendants Paul V. Degenhart (Degenhart), University Club Group, Inc. (UC Group) and UC Properties, LLC (UC Properties). Degenhart, who resides in Columbia, South Carolina, is an owner and the controlling person of UC Group and UC Properties. UC Group is a Delaware corporation with its principal place of business in Columbia, South Carolina. UC Properties is a South Carolina limited liability company with its office in Columbia, South Carolina.
The Complaint alleges that from November 1998 through May 2002, the defendants operated a Ponzi scheme through a series of twenty-one securities offerings they made with the assistance of Southern Financial Group, Inc., a former South Carolina broker-dealer which served as underwriter for these offerings. The face value of these offerings totaled approximately $100 million, but because many of the investments were rolled-over, the actual amount raised was approximately $29.8 million. The Complaint alleges that the defendants knew, or were severely reckless in not knowing, but failed to disclose to investors, that the note offerings operated as a Ponzi scheme, because funds from new investors were required to pay the returns promised to earlier investors. The Complaint further alleges that the defendants knew, or were severely reckless in not knowing, that the information presented to investors in connection with these offerings failed to disclose that the collateral was insufficient to secure the payment of the notes, and that the offering materials presented to investors falsely represented, among other things, the interest rates and amounts of UC Group and UC Properties outstanding obligations.
The Complaint charges the defendants with violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Complaint seeks, among other relief, injunctions against future violations against all defendants, and disgorgement of all ill-gotten gains with prejudgment interest and the imposition of civil penalties against Degenhart.