U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19689 / May 5, 2006
SEC v. EFS, LLC, Freedom Fidelity, LLC, James N. Pratt, SP&V, LLC and Timothy V. Coffin, Civil Action No. 3-06CV0793-M, United States District Court for the Northern District of Texas (Dallas Division)
On May 3, 2006, the United States Securities and Exchange Commission filed an emergency civil action in United States District Court in Dallas, Texas to halt an alleged fraudulent "prime bank" scheme and preserve any remaining funds raised from investors. The Commission's complaint alleges that James N. Pratt, of Carrollton, Texas, and Timothy V. Coffin, of Huntington Beach, California, conducted a fraudulent scheme which has raised approximately $1.06 million from at least 85 investors with false representations regarding the intended investment of investor funds and projected profits. Judge Barefoot Sanders, United States District Judge for the Northern District of Texas, granted the Commission's Motion for Temporary Restraining Order and issued an Ex Parte Order Freezing Assets and Requiring an Accounting, Preservation of Documents and Authorizing Expedited Discovery, and appointed a receiver for all defendants.
The Commission's complaint alleges that the defendants are engaged in an unregistered and fraudulent securities offering that has lured investors with false promises of astronomical investment returns. Since September 2004, the defendants have fraudulently raised approximately $1.06 million from at least 85 investors. The fraud is apparently ongoing; the defendants have taken money from investors as recently as April 25, 2006.
The complaint further alleges that defendants Pratt and Coffin are orchestrating the scheme through business entities they control, including EFS, Freedom Fidelity, and SP&V. The scheme involves what is commonly known as a "prime bank" scheme, in which almost every representation made to investors about the nature and terms of the investment is a fabrication. Investors are led to believe that phenomenal investment returns will be achieved through the trading of "bank instruments." In reality, the trading program does not exist. Consequently, the defendants have failed to generate the promised returns, and, according to the complaint, they have failed to offer any explanation for the disposition of approximately one-third of the investors' funds.
The Commission's complaint charges that the defendants have violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)] ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. § 78j(b)] ("Exchange Act"), and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. The Commission also seeks orders requiring the defendants to pay civil monetary penalties and to disgorge all ill-gotten gains, plus prejudgment interest thereon.
Unscrupulous promoters continue to victimize the public with "prime bank" schemes. Accordingly, investors are advised to access the Commission's "prime bank" Investor Alert, which provides tips on how to avoid being a victim of these scams. The investor alert can be found on the Commission's web site, at www.sec.gov/divisions/enforce/primebank.shtml.
The Commission acknowledges the assistance and cooperation of the State of California Department of Corporations.