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U.S. Securities and Exchange Commission

MARSHALL GANDY
Attorney for Plaintiff
United States Securities and Exchange Commission
Texas Bar No. 07616500
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, Texas 76102-6882
Telephone: (817) 978-6464
Fax: (817) 978-4927

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
PHOENIX DIVISION


SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

vs.

ROBERT R. DILLIE
and
MID-AMERICA FOUNDATION, INC.,

Defendants,

and

MID-AMERICA FINANCIAL GROUP, INC.,

Defendant Solely for
Purposes of Equitable Relief.


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CASE NO.
 
 
COMPLAINT

The United States Securities and Exchange Commission ("Commission"), files this complaint against Defendants, Robert R. Dillie ("Dillie") and Mid-America Foundation, Inc. ("Mid-America") (collectively "the Defendants") and Relief Defendant Mid-America Financial Group, Inc. ("Mid-America Financial" or "Relief Defendant"), and would respectfully show the Court as follows:

Summary

1. Mid-America and its Executive Director, Robert Dillie, have swindled hundreds of typically elderly investors throughout the country of an estimated $54 million. Preying upon the public's laudable desire to contribute to charities, the Defendants claimed to sell an investment called a "charitable gift annuity" ("CGA"), that was to pay the investor a guaranteed rate of return, with the principal paid to a designated charity at the investor's death.

2. In reality, instead of using the funds raised during the past four years to purchase securities and produce income, Dillie used much of the money raised from the sale of CGAs to make "ponzi" payments to investors and to support his extragavant lifestyle and gambling habit.

3. In the sales literature used to promote his fraudulent scheme, Dillie touted the safety, security and tax benefits of the CGAs as well as the charitable aspects of the investment. The safety aspect of the investment was repeatedly underscored by representations that Merrill Lynch, Pierce, Fenner & Smith Inccorporated ("Merrill Lynch"), acted as manager of the CGA assets.

4. The claims that Merrill Lynch managed the investment were completely false.

5. The scheme is now collapsing, and Dillie has advised clients that Mid-America has disbanded and "due to inadequate assets is unable to make any further distributions of annuity payments."

6. By reason of these activities, the Defendants have violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder. The Commission, in the interest of protecting the public from any further fraudulent activity, brings this action against Dillie and Mid-America seeking temporary, preliminary and permanent injunctive relief, disgorgement of illicit profits, plus accrued prejudgment interest and a civil monetary penalty. The Commission also seeks an asset freeze against Dillie, Mid-America and Mid-America Financial, an entity to which Dillie diverted investor funds, an accounting and other incidental relief, as well as the appointment of a receiver to take possession of Dillie's assets and control of Mid-America and Mid-America Financial so that investor assets will not be further dissipated.

Jurisdiction

7. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77t(b)], Section 21(d) of the Exchange Act [15 U.S.C. §78u(d)] to enjoin the Defendants from future violations of the federal securities laws. The Commission also seeks disgorgement of ill-gotten gains from the Defendants, plus prejudgment interest, and civil penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. The Commission is also seeking disgorgement and plus prejudgment interest from the Relief Defendant, regarding all funds derived, directly or indirectly, from the Defendants' fraudulent conduct.

8. The Court has jurisdiction over this action pursuant to Section 22 of the Securities Act [15 U.S.C. § 77v] and Section 27 of the Exchange Act [15 U.S.C. § 78(aa)].

9. The Defendants, directly or indirectly, made use of the means or instruments of transportation and communication, and the means or instrumentalities of interstate commerce or of the mails, in connection with the transactions, acts, practices and courses of business alleged in this Complaint. Certain of the transactions, acts, practices and courses of business alleged herein took place in the District of Arizona.

Defendants

10. Robert R. Dillie ("Dillie") is a resident of Phoenix, Arizona, currently located in Westport, South Dakota, and is the Executive Director of Mid-America. Dillie was recently arrested on Nevada felony fraud charges in connection with numerous bogus checks he issued to Las Vegas casinos. Dillie's Wisconsin insurance license was revoked in a matter unrelated to Mid-America.

11. Mid-America Foundation, Inc. ("Mid-America"), is a Delaware not-for-profit corporation with its principal place of business in Scottsdale, Arizona. Mid-America "leased" its 501(c)(3) tax exempt status from another foundation until it obtained its own 501(c)(3) tax exempt status in 1998. The company is the issuer of the CGAs and most of the investor funds raised in this scheme were deposited in bank and brokerage accounts in the name of Mid-America or its affiliates.

Relief Defendant

12. Mid-America Financial Group, Inc. ("Mid-America Financial") is a Delaware corporation, formerly wholly owned by Dillie. Mid-America Financial was the marketing arm for CGA sales and holds property of Mid-America, including a bank account with approximately $18,000 believed derived from CGA sales.

Statement of Facts

A. Mid-America's Sales of CGAs

13. Since at least 1997, Mid-America has used its purported charitable status to fleece elderly investors. Through a nationwide network of commissioned sales agents, Mid-America and Dillie sold investment contracts denominated as CGAs to elderly investors who sought safe, steady income, tax benefits, and charitable donations. It is estimated that Mid-America sold CGA's valued at over $54 million.

14. Although contracts varied somewhat, investors made an irrevocable gift of cash, securities or other assets to Mid-America, which in turn promised to periodically pay the investor a fixed sum that incorporated a guaranteed rate of return. The guaranteed rate of return varied depending on the investor's age and the date the payments commenced, similar to an annuity. At the investor's death, Mid-America agreed to pay the remainder of the gift to charities designated by the investor.

15. A Mid-America disclosure statement and at least one of the CGA agreements stated that payments under the agreement were general obligations of the company, and that Mid-America's invested funds were in placed stocks, bonds, money market funds, and federal obligations.

16. A CGA agreement for an Arizona purchaser also stated that the CGA was not considered "insurance" under the laws of Arizona, was not subject to regulation by the director of insurance, and was not protected by any state guaranty fund.

17. To fund their CGAs, investors transferred cash and/or securities to bank or brokerage accounts in the name of Mid-America or its affiliates.

18. On occasion, Mid-America falsely claimed that the assets received for gift annuities were managed by Merrill Lynch in a conservative and disciplined manner. Mid-America also emphasized the safety, steady income and tax benefits of the CGAs, in some instances using written materials that highlighted Merrill Lynch's name and corporate logo in touting the safety of the investment.

19. Investment materials lauded the tax benefits of the CGAs and described the CGAs as "the best way to protect and preserve your family's assets and perpetuate your favorite charity at the same time."

20. Mid-America and Dillie also disseminated false financial statements to lull sales agents. A balance sheet and income statement dated October 1, 2001, claims that Mid-America had $19 million in equity and over $1 million in income. Less than two weeks later, however, Dillie notified clients that the company had disbanded and that due to inadequate assets Mid-America was unable to make further distributions of annuity payments.

21. To date, the Arizona Securities Division has received complaints from 70 investors in 15 states with total investments of more than $17 million .

B. Misuse of Investor Funds

22. Except for some nominal insurance commissions, all of Mid-America's revenues came from investor purchases of CGAs. Dillie's expenditures of corporate funds were, in essence, expenditures of investor funds.

23. Dillie and Mid-America misappropriated most, if not all of the CGA sale proceeds, to pay for his extravagant lifestyle and extensive gambling debts which, upon information and belief, total several million dollars. In fact, Dillie has been charged in Nevada with issuing bogus checks totaling more than half a million dollars to Las Vegas casinos.

24. Dillie purchased three residences in Las Vegas and a ranch in South Dakota with investor funds.

25. Dillie also used investor funds to pay child support payments and other personal expenses.

26. In addition, Dillie caused Mid-America, a purported charitable organization, to incur astronomical travel and entertainment expenses, including thousands of dollars for aircraft charters.

27. Significantly, only nominal payments have been made to any charities.

Causes of Action

COUNT ONE
Violations of Section 10(b) of the Exchange Act and Rule 10b-5

28. Plaintiff Commission repeats and incorporates paragraphs 1 through 27 of this Complaint by reference as if set forth verbatim.

29. The Defendants 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 (a) have employed devices, schemes and artifices to defraud, (b) have made untrue statements of material facts and have 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) have engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers and other persons.

30. As a part of and in furtherance of their scheme to defraud, the Defendants, directly and indirectly, prepared, disseminated or used contracts, written offering documents, promotional materials, investor and other correspondence and oral presentations 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 above.

31. The Defendants made those misrepresentations and omissions knowingly or with reckless disregard for the truth.

32. By reason of the foregoing, the Defendants 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 [17 C.F.R. § 240.10b-5] thereunder.

COUNT TWO
Violations of Section 17(a) of the Securities Act

33. Plaintiff Commission repeats and incorporates paragraphs 1 through 27 of this Complaint by reference as if set forth verbatim.

34. The Defendants directly or indirectly, singly or in concert with others, in the offer and sale of securities, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, have (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or omissions 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 transactions, practices or courses of business which operate or would operate as a fraud or deceit.

35. As part of and in furtherance of this scheme, the Defendants, directly and indirectly, prepared, disseminated or used contracts, written offering documents, promotional materials, investor and other correspondence and oral presentations which contained untrue statements of material fact 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 statements and omissions set forth above.

36. The Defendants made the above-referenced misrepresentations and omissions knowingly or with reckless disregard for the truth.

37. By reason of the foregoing, the Defendants violated, and unless enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)(1)].

COUNT THREE
Claim Against Relief Defendant as Custodians of Investor Funds

38. Plaintiff Commission repeats and incorporates paragraphs 1 through 27 of this Complaint by reference as if set forth verbatim.

39. The Relief Defendant, Mid-America Financial, received, directly or indirectly, funds and/or other benefits from the Defendants which either are the proceeds of, or are traceable to the proceeds of, the unlawful activities alleged herein and have no legitimate claim to those funds and property.

40. The Relief Defendant obtained the funds and property as part of and in furtherance of the securities violations alleged and under circumstances in which it is not just, equitable or conscionable for it to retain the funds and property, and it has been unjustly enriched.

41. The Commission is entitled to an order requiring that the Relief Defendant disgorge those funds plus prejudgment interest thereon.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff respectfully requests that this Court:

I.

Enter a Temporary Restraining Order restraining the Defendants from continuing violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

II.

Enter a Preliminary Injunction against the Defendants enjoining them from further violations of Section 17 (a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

III.

Permanently enjoin the Defendants and their agents, servants, employees, attorneys and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.

IV.

Appoint a Receiver on an interim basis to take control of the assets of Dillie, Mid-America and Mid-America Financial to marshal and preserve their assets for the benefit of Dillie's defrauded investors.

V.

Require a full and accurate accounting and an interim asset freeze of all assets of Defendants until a full and accurate accounting can be made of all investor monies raised in this scheme and a determination made as to the disposition of those assets.

VI.

Enter and order instanterthat Defendants be restrained and enjoined from destroying, removing, mutilating, altering, concealing or disposing of, in any manner, any of their books and records or documents relating to the matters set forth in the Complaint, or the books and records and such documents of any entities under their control, until further order of the Court;

VII.

Enter an order that the parties may commence discovery immediately, and that notice periods be shortened to permit the parties to require production of documents or to take oral depositions on seventy-two (72) hours notice by facsimile or personal service;

VIII.

Order the Defendants to disgorge an amount equal to the funds and benefits they obtained as a result of the violations alleged, plus prejudgment interest on that amount, and the Relief Defendant to disgorge an amount equal to the funds and benefits it obtained as a result, directly or indirectly, from the Defendants conduct alleged herein, plus prejudgment interest on that amount.

IX.

Order civil penalties against the Defendants pursuant to pursuant to Section 20(d) of the Securities Act, Section 21(d)(3) of the Exchange Act for violations of the federal securities laws as alleged herein; and

X.

Such other and further relief as the Commission may show itself entitled.

Dated: December 20, 2001


________________________
MARSHALL GANDY
(Attorney in Charge)
Texas Bar No. 07616500
Attorney for Plaintiff
 
SECURITIES AND EXCHANGE COMMISSION
Fort Worth District Office
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, TX 76102-6882
Telephone: (817) 978-6464
Facsimile: (817) 978-4927
Of Counsel:
SPENCER C. BARASCH
District of Columbia Bar No. 388886
ROBERT C. HANNAN
Texas Bar No. 08924700
JOHN C. MARTIN
District of Columbia Bar No. 443435
 
SECURITIES AND EXCHANGE COMMISSION
Fort Worth District Office
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, TX 76102-6882

 

http://www.sec.gov/litigation/complaints/complr17290.htm


Modified: 12/26/2001