U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19659 / April 17, 2006
SEC v. John P. Utsick et al., Civil Action No. 06-20975-CIV-UNGARO-BENAGES (S.D. Fla.)
The Securities and Exchange Commission announced that on April 17, 2006, it filed a civil injunctive action in the United States District Court for the Southern District of Florida against Worldwide Entertainment, Inc. and Entertainment Group Fund, Inc. and their principal John P. ("Jack") Utsick, and American Enterprises, Inc. and Entertainment Funds, Inc. and their principals Robert Yeager and Donna Yeager, alleging violations of the antifraud and registration provisions of the federal securities laws in connection with a fraudulent offering that raised over $300 million from over 3,300 investors nationwide. The Commission has also requested the appointment of a receiver over all four corporate defendants.
Simultaneously with the filing of its Complaint, the Commission also filed Consents to the entry of Judgments of Permanent Injunction and Other Relief, executed by all the defendants, with proposed judgments for entry by the District Court. Defendants, without admitting or denying the allegations of the Complaint, consented to the entry of a judgment permanently enjoining them from engaging in the violations set forth above, and providing for an asset freeze, repatriation order, an accounting and disgorgement, with prejudgment interest, and the imposition of civil penalties, in amounts to be determined at a future date.
The Commission's complaint alleges that from at least 1998 through late 2005, the defendants sold unregistered securities in the form of loan agreements or units in special purpose limited liability companies ("LLCs") to raise funds for a variety of entertainment ventures produced and/or promoted by Jack Utsick, the third-largest independent entertainment promoter in the world according to Billboard Magazine. Defendants told prospective investors that their investments would earn annual returns ranging from 15% to 25% and, in some in instances, an additional 3% of the profits generated by Jack Utsick and his companies. The investments in the LLCs or loan agreements were usually for a term of one year, and many investors rolled over their principal and purported "profits" from project to project. Over the years, defendants raised funds for dozens of projects, including theatrical productions and concerts for well-known artists and groups such as Shania Twain, Elton John, Santana, The Pretenders and Aerosmith.
The Complaint further alleges that, in connection with the offering, the defendants made material misrepresentations and omissions to investors about, among other things, the profitability of their investments, the use of proceeds, the payment of commissions, and the existence of state disciplinary actions. The defendants' promised annual returns of 15% to 25% were baseless. Although the offering materials for each venture identified the particular concert or event for which funds would be used, Utsick commingled all of the funds received for the projects in two operating accounts (Worldwide or Entertainment Group), from which he paid all business and personal expenses. Because Utsick did not maintain any separate accounts or books and records for each project, it was impossible for defendants to determine the profitability of any event. Moreover, many of the entertainment projects Worldwide and Entertainment Group promoted or produced lost money (and at least one project was not produced) and, as a result, earlier investors were paid with monies the defendants raised from new investors.
Additionally, contrary to the defendants' representations that no commissions were paid in connection with the offering, Utsick paid over $7 million in undisclosed commissions to the Yeagers and others. Utsick also used investor funds inconsistently with the purposes promised to investors. Utsick opened an options trading account for Entertainment Group through which he traded (and lost) nearly $17 million, and he used investor funds to, among other things, pay principal and interest to earlier investors, pay sales commissions, purchase two multimillion condominiums in Miami Beach, Florida, and to fund his lavish lifestyle. Finally, Defendants did not disclose to investors the existence of state securities actions by Wisconsin, Missouri and Michigan.
The Complaint charges the defendants with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and, as to Robert and Donna Yeager, American Enterprises and the Entertainment Funds, with violations of Section 15(a) of the Exchange Act. The Complaint seeks permanent injunctions prohibiting future violations of the securities laws, an accounting and disgorgement of ill-gotten gains, with prejudgment interest, imposition of civil penalties, and an asset freeze through the conclusion of the litigation.