IN THE UNITED STATES DISTRICT COURT
Plaintiff United States Securities and Exchange Commission ("Commission") alleges as follows:
1. Autofund Servicing, Inc. ("Autofund"), is a San Antonio-based company whose stock is quoted on the Over-The-Counter ("OTC") Bulletin Board. Autofund was engaged in the business of collecting charged-off automobile loans for other parties under service contracts. It also sought to acquire portfolios of charged-off loans, which it intended to collect for its own account. In January and March 2002, James D. Haggard, Jr. ("Haggard"), Autofund's founder, chairman, and majority owner, issued four materially false and misleading press releases on behalf of the company. The press releases concerned the acquisition of a multi-million dollar portfolio of charged-off loans, a substantial increase in gross revenue from fiscal years 2000 to 2001, and the approval of a $2 million loan. These press releases violated the anti-fraud provisions of the Securities Exchange Act of 1934 ("Exchange Act") and its supporting regulations. Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].
1. This Court has jurisdiction over this action pursuant to Sections 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(e) and 78aa].
2. Defendants have, directly and indirectly, made use of the means or instrumentalities of interstate commerce and/or the mails in connection with the transactions described in this Complaint. Certain of the acts and transactions described herein took place in the Western District of Texas.
3. Autofund Servicing, Inc. violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
4. James D. Haggard, Jr. violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
5. Autofund Servicing, Inc., is a Nevada corporation located in San Antonio, Texas. Autofund's common stock is registered under Section 12(g) of the Exchange Act, and its stock is quoted on the OTC Bulletin Board, a service of NASD, Inc. Until June 2002, Autofund was engaged in the business of collecting charged-off automobile loans on behalf of third-party lenders. Since then, it has functioned as a public shell company, generating no revenue and conducting no business operations other than seeking a merger partner.
6. James D. Haggard, Jr., age 55, is a resident of San Antonio, Texas. Haggard is Autofund's Chairman, President, and majority stockholder.
7. While acting in his capacity as an officer of Autofund, Haggard approved and provided the information for Autofund's press releases dated January 22, 2002, January 23, 2002, March 5, 2002, and March 7, 2002. These press releases were issued through a newswire service into interstate commerce in connection with the purchase and sale of securities - Autofund's common shares quoted on the OTC Bulletin Board.
8. On January 22, 2002, Autofund announced in a press release that it had "completed the closure" of an automobile loan portfolio "with a value of $30 million." This press release also stated that the useful life for this portfolio was estimated to be about 24 months and that the portfolio "will begin generating revenue in about 90 days and should produce a net (after loan expense) income the first 12 months in excess of $360,000." In reality, the loan-portfolio transaction had not closed. Autofund never signed the final contract, never paid consideration, and never generated revenue from the portfolio.
9. On January 23, 2002, Autofund issued a press release announcing, among other things, that its "gross revenue (monies collected) for 2001 is over $2,830,000.00 and that's $500,000.00 more than last year, an increase of 24%." The release also contained the following quote from Haggard: "With the $30 million dollar portfolio recently closed Autofund is now collecting on $193 million dollars representing 35,871 automobile accounts. Given the history of the company and what we now know, Autofund will grow this year by more than 24%." In truth, Autofund's 2001 gross revenue was approximately $2 million-not $2,830,000 as stated in the release. Rather than increase 24%, gross revenue actually decreased 11% from 2000 to 2001. Moreover, Autofund never closed on the $30 million automobile loan portfolio, and thus, Haggard had no reasonable basis to project a 24% increase in growth.
10. On March 5, 2002, and March 7, 2002, Autofund issued press releases reporting that a lender had approved a $2 million loan to Autofund. The releases announced that the loan would enable Autofund to purchase $200 million in additional automobile loan portfolios and that Autofund expected earnings per share of $.11 for 2002 based upon the acquisition of these portfolios. The predicted 2002 $.11 earnings per share was more than 1,000% of Autofund's 2000 earnings per share of $.01. These two press releases were misleading because Autofund never obtained approval of the loan. Instead, Autofund had simply agreed to pay a loan broker to attempt to arrange a loan on a "best efforts basis." In fact, the broker never arranged any loan for Autofund.
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder by Defendants Autofund and Haggard
11. Plaintiff Commission repeats and incorporates paragraphs 1 through 11 of this Complaint by reference as if set forth verbatim.
12. Defendants Autofund and Haggard directly or indirectly, singly or in concert with others, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails, have: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers, and other persons.
13. As a part of and in furtherance of their scheme, defendants Autofund and Haggard directly and indirectly, prepared, approved, and disseminated press releases and e-mails which contained untrue statements of material facts and misrepresentations of material facts, and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those set forth in paragraphs 8 through 11 above.
14. Defendants Autofund and Haggard knowingly or recklessly engaged in the conduct described in this Claim.
15. By reason of the foregoing, defendants Autofund and Haggard have violated, and unless enjoined, will continue to violate the provisions of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court enter a judgment:
(i) permanently enjoining defendant Autofund, and its agents, servants, employees, attorneys, and those in active concert or participation with it, who receive actual notice by personal service or otherwise, from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(ii) permanently enjoining defendant Haggard, and his agents, servants, employees, attorneys, and those in active concert or participation with him, who receive actual notice by personal service or otherwise, from violating Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder;
(iii) ordering defendant Haggard to pay civil money penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];
(iv) barring defendant Haggard from serving as an officer or director of a publicly traded company pursuant to Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]; and
(v) granting such other relief as this Court may deem just and appropriate.
Dated this 11th day of February, 2003.
SPENCER C. BARASCH