U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19640 / April 4, 2006
SEC v. Unlimited Cash, Inc., Douglas Network Enterprises, Sneed Financial Service, LLC, Wayne Douglas Flesher, Nancy Carol Khalial, and Clifton Curtis Sneed, Jr., United States District Court for the Northern District of Texas, Dallas Division
SEC Files Fraud Charges in Connection With Ponzi Scheme Involving Investments in Advertising Monitors
On April 4, 2006, the Securities and Exchange Commission filed securities fraud charges in Dallas federal court, against three individuals and their companies for conducting a fraudulent and unregistered offering of investment contracts involving "Ad Toppers," computer monitors purportedly used to display advertisements in public locations. The Commission's complaint seeks permanent injunctions, civil penalties, disgorgement of unjust enrichment and an accounting for all investor proceeds.
The Commission's Complaint names the following defendants:
The Commission alleges that, between April 2001 until at least May 2005, Flesher and Khalial, through their respective companies, raised over $18 million from hundreds of investors nationwide by fraudulently offering and selling the Ad Topper investments. The Commission contends that Flesher and Khalial lured investors by representing, among other things, that the Ad Topper investment would provide at least 16% annual returns, generated from Douglas Networks' sale of advertising on the Ad Topper machines. Flesher and Khalial further represented that, after three years, investors could recoup their original Ad Topper investment by selling the machines to Douglas Networks for the original purchase price.
According to the Complaint, these representations and others were false. The Complaint alleges that, in truth, the Ad Topper investment was a Ponzi scheme, with virtually all "returns" to investors coming from new investor funds, not from advertising sales. The Complaint further alleges that Douglas Networks generated only minimal advertising revenue. The Commission also contends that Flesher and Khalial failed to tell investors that many Ad Toppers never were placed in the promised locations; that the same machine was "sold" to multiple investors at the same time; and that UCI had filed for bankruptcy protection during the offering. Additionally, the Commission contends that defendants did not disclose to investors that sales agents received commissions ranging from 16% to 23%.
The Complaint alleges that Sneed, through his company, was among the most prolific sellers of the Ad Topper program. The Commission contends that Sneed solicited his insurance clients, and sought additional investors through newspaper advertisements and estate planning seminars, luring many elderly investors into the Ad Topper program. The Commission also asserts that Sneed not only blindly repeated Flesher and Khalial's misrepresentations, but also made additional misrepresentations in offering materials he prepared. These alleged misrepresentations included false claims that Sneed had conducted considerable due diligence on the investment and found it trustworthy, and that he had invested in the program, when he had not. The Complaint further alleges that Sneed's offering materials contain fictitious testimonials about the Ad Topper program.
The Complaint charges that all Defendants conducted an unregistered securities offering in violation of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), and committed securities fraud in violation of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission also charges Sneed and Sneed Financial with acting as unregistered brokers or dealers, in violation of Section 15(a) of the Exchange Act.