U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19426 / October 13, 2005
SEC v. Charles L. Harris, Tradewinds International, L.L.C. and Tradewinds International II, L.P., Civil Action No. 04 C 5725 (N.D. Ill., filed September 1, 2004)
SEC OBTAINS PERMANENT INJUNCTION AGAINST CHARLES L. HARRIS
The U.S. Securities and Exchange Commission announced that on October 12, 2005, a federal district court in Chicago entered an agreed order permanently enjoining Charles L. Harris, of Winnetka, Illinois, from violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The permanent injunction was based on Harris's fraudulent offer and sale of securities in violation of federal securities laws. The Court also ordered Harris to pay disgorgement of ill-gotten gains, prejudgment interest thereon, and a civil penalty in an amount to be determined by the Court upon further motion by the Commission. On October 6, 2005, Harris was sentenced to 168 months in prison and was ordered to pay restitution of $13,861,849 in U.S. v. Harris, Criminal Case No.04 CR 0771, based on the same conduct described below.
The Commission's Complaint alleged that Harris fraudulently raised at least $10 million from at least 30 investors for Tradewinds International II, LP ("Tradewinds II"), a private investment "hedge fund," since July 2001. The Complaint further alleged that Harris misrepresented Tradewinds II's past rates of return, net asset value and the use of investor funds.
The Complaint also alleged that, in July 2004, Harris sent certain investors e-mails and a DVD in which he confessed that he had falsely reported a 12% annual profit to investors in Tradewinds II for 2003, when in reality, Tradewinds II lost a significant amount of money. Harris also claimed to have fled the country and to have taken the claimed remaining investor assets offshore.
The Complaint further alleged that, while Harris told investors in 2003 that Tradewinds II's net asset value was between $18 and $23 million, trading account statements reflect a total value of at most $1.1 million during 2003, and approximately $30,000 at the end of the year.
The Complaint also alleged that, contrary to representations to investors, Harris used investor funds for purposes other than trading. The Complaint alleged that, in 2003 and 2004, at least $2.4 million of investor funds were never transferred to the trading accounts, but were used instead for Harris's personal and business expenses and to repay investors at artificially inflated rates, while Tradewinds II secretly incurred losses.