UNITED STATES OF AMERICA
In the Matter of
JOHANN M. SMITH,
|ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be and hereby are instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"), against Johann M. Smith ("Smith").
In anticipation of the institution of these proceedings, Smith has submitted an Offer of Settlement to the Commission which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party and, without admitting or denying the findings contained herein, except as to the entry of the permanent injunction described in paragraph II.F. below and the Commission's jurisdiction over him and over the subject matter of this proceeding, which are admitted, Smith consents to the institution of public administrative proceedings, and the findings and remedial sanctions set forth below.
On the basis of this Order and the Offer of Settlement submitted by Smith, the Commission finds that:
A. Smith, age 44, resides in Indianapolis, Indiana and is the founder of now-defunct JMS Investment Group, LLC ("JMS"), an unregistered entity acting as a broker-dealer. Smith was the manager of JMS and, among other things, participated in the investment decisions for JMS, including making recommendations to investors on their stock purchases through JMS.
B. JMS was an Indiana limited liability company formed in October 1997 by Smith. JMS' purported objective was to invest in the initial public offerings of financial institutions, Internet and technology companies. From approximately January 1998 to December 1999, JMS offered to sell 1,000 "units" of JMS for $10,000 a unit. Units of JMS supposedly represented investors' ownership of stock that either JMS and Smith or the investor would choose. JMS has never been registered with the Commission.
C. From approximately January 1998 to December 1999, JMS was engaged in the business of effecting transactions in securities for the accounts of others and Smith was associated with JMS.
D. On August 10, 2000, the Commission filed a Complaint for Ex Parte Temporary Restraining Order, Orders of Preliminary and Permanent Injunction and Other Equitable Relief ("Complaint") in the United States District Court for the Southern District of Indiana, captioned SEC v. Payne, et al., IP00-1265 C, against Smith and others.
E. The Commission's Complaint alleged as follows: From at least January 1998 to the date of the Complaint, Smith and the other defendants engaged in a Ponzi scheme by defrauding investors through the offer and sale of three bogus investment opportunities: (1) initial public offerings of financial institutions, Internet and technology companies represented by units of JMS; (2) interests in an offshore bank located in Belize; and (3) units of Heartland Financial Services, Inc. ("Heartland") as well as stocks, money markets and mutual funds through Heartland. Rather than use investor funds for legitimate securities transactions, Smith and the other defendants commingled investors' funds from all three schemes in a common bank account controlled by Smith and another defendant and used most of the $29 million raised from investors to repay investors in the Ponzi scheme and for other non-investment related purposes. Further, regarding JMS, Smith and other defendants raised at least $18.5 million by offering and selling securities, in the form of "units," through JMS to at least 257 investors in at least 13 states. Among other things, Smith recommended which stocks JMS investors should purchase. However, Smith failed to purchase legitimate securities for investors. Instead, investor funds from the JMS scheme were commingled with investor funds from the other two investment schemes. Smith and another defendant paid JMS investors returns on their supposed investments from the commingled funds and sent investors false confirmations and account statements on JMS letterhead reflecting the investors' supposed holdings and account values. The Complaint further alleged that Smith violated antifraud provisions of the federal securities laws and that JMS violated, and Smith aided and abetted violations of, the broker-dealer registration provisions of the federal securities laws.
F. On November 16, 2000, the Honorable John D. Tinder entered an order of permanent injunction against Smith. Smith, without admitting or denying the allegations of the Commission's Complaint, except as to jurisdiction, consented to the entry of the order, which enjoins him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b), 15(a) and 15(c) of the Exchange Act and Rules 10b-5 and 15c1-2 thereunder.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement of Johann M. Smith.
Accordingly, IT IS ORDERED that Respondent Johann M. Smith be, and hereby is, barred from association with any broker or dealer.
For the Commission, by its Secretary, pursuant to delegated authority.
Jonathan G. Katz
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