U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19348 / August 25, 2005
SECURITIES AND EXCHANGE COMMISSION v. PAR THREE FINANCIAL, INC. and MELVIN D. RUTH, Case No. 05-807 (S.D. Fla.)
SEC HALTS MULTI-MILLION DOLLAR ONGOING SECURITIES FRAUD INVOLVING PURPORTED LENDING PROGRAM
The Securities and Exchange Commission ("Commission") on August 25, 2005, obtained a temporary restraining order halting an ongoing securities fraud by Melvin D. Ruth, age 64, of Boca Raton, Florida, and an entity that he controls, Par Three Financial, Inc., a Nevada corporation operating in Boca Raton, Florida. The Commission's complaint, filed today in United States District Court in Miami, alleges that, since approximately November 2003, the defendants have sold more than $8 million in securities in connection with a purported program to lend monies to check cashing/payday loan stores. The defendants represent that Par Three loans money to these check cashing stores at rates of interest sufficiently high to allow it to pay its investors returns of 2% per month or more.
The complaint alleges that, in reality, Par Three is not profitable and is operating an undisclosed Ponzi scheme-using new investor monies to make the interest payments to existing investors-in violation of the federal securities laws. The complaint further alleges that the defendants have misappropriated investor funds to purchase a yacht, automobiles, jewelry, and several parcels of real property, and to make undisclosed payments to sales agents. In addition, the complaint alleges that the defendants failed to disclose that Ruth is a control person of Par Three and that, in 2000, Ruth was convicted of a felony in connection with an investment scheme substantially similar to the Par Three scheme. Finally, the complaint alleges that the defendants engaged in an unlawful unregistered securities offering by selling Par Three's securities to at least 120 investors nationwide through advertising in newspapers and Internet publications.
Acting on the Commission's lawsuit, the Honorable Linnea R. Johnson, United States District Judge for the Southern District of Florida, granted the Commission's application for a temporary restraining order against the defendants and issued orders freezing the defendants' assets, appointing a temporary receiver over the assets of Par Three, prohibiting the destruction of documents by the defendants, granting expedited discovery, and requiring accountings from the defendants. The Court appointed Michael I. Goldberg, Esq. as the temporary receiver. The Court ordered the temporary restraining order and asset freeze to remain in effect until September 6, 2005. The Court will determine the date that it will hold a hearing on the Commission's motion for a preliminary injunction and appointment of a permanent receiver at a future time. In addition to emergency relief, the Commission's complaint seeks from each defendant preliminary and permanent injunctions, disgorgement with prejudgment interest, and a civil penalty.
The Commission's complaint alleges that the defendants violated the antifraud provisions 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, and the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act.