U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19801 / August 10, 2006
Securities and Exchange Commission v. Jon W. James; J.W. James & Associates; J.W. James Borrowing Entity, LLC; J.W. James Investment Group Fund One, LLC; The James Company Fund I, LLC; The James Company Borrowing Entity, LLC; Virtual Cash Flow Corporation; The Cloaking Device, Inc.; and J.W. James Acquisitions, LLC, No. CV 06 4966 JSL / FFMx (C.D. Cal.)
SEC HALTS $22 MILLION FRAUD IN SOUTHERN CALIFORNIA TARGETING RETIREMENT FUNDS
The Securities and Exchange Commission today filed an emergency action to halt an ongoing securities fraud targeted at retirement funds. The fraud has raised over $22 million to date. Named in the Commission’s complaint are Jon W. James, age 29 and a resident of Manhattan Beach, Calif., and several companies that he controls, including Jon W. James & Associates (JWJA), based in El Segundo, Calif. The Honorable Florence-Marie Cooper, United States District Judge for the Central District of California, issued an order appointing a temporary receiver over the companies controlled by James and freezing assets.
According to the Commission’s complaint, since at least January 2004, James, through JWJA, has solicited investors with direct mail invitations to free dinner seminars focusing on retirement planning. As alleged in the complaint, the invitations include statements such as “Retirement Secrets of the Rich: What your Accountant and Stockbroker don’t want you to know.” The complaint further alleges that the invitations and seminars claim JWJA will help investors retire “in just seven short years” by investing their IRA funds “to take advantage of the booming real estate market” and “to produce double-digit returns.”
As alleged in the complaint, investors are falsely told that their funds will be used for profitable real estate transactions that will provide returns, which at times were represented to be as high as 24%. The complaint alleges that the defendants offered and sold promissory notes and, later, interests in limited liability companies.
The Commission’s complaint alleges that, throughout 2004 and 2005, defendants did not purchase any real estate or real estate related assets from which to pay investor returns. Additionally, the complaint alleges that the defendants misrepresented to investors that their investments would be secured by real property or by monies owed to JWJA from real estate transactions. The complaint also alleges that defendants fraudulently failed to disclose that they used new investor money to pay returns to previous investors.
In addition to James and JWJA, also named in the Commission’s complaint are: J.W. James Borrowing Entity, LLC, a California limited liability company; J.W. James Investment Group Fund One, LLC, a California limited liability company; The James Company Fund I, LLC, a California limited liability company; The James Company Borrowing Entity, LLC, a California limited liability company; Virtual Cash Flow Corporation, a former Nevada corporation; The Cloaking Device, Inc., a Nevada corporation; and J.W. James Acquisitions, LLC, a California limited liability company.
The Court issued an order temporarily enjoining defendants from future violations of the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and orders (1) freezing assets; (2) appointing a temporary receiver; (3) prohibiting the destruction of documents; (4) expediting discovery; and (5) requiring accountings. The Commission also seeks preliminary and permanent injunctions, return of ill-gotten gains with prejudgment interest, and penalties against all defendants.
A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for August 24, 2006.
Investors may direct their inquiries to the temporary receiver, Edythe L. Bronston, at (818) 528-2893.
The Commission acknowledges the assistance of the California Department of Corporations.
The webcast of the SEC’s Seniors Summit held on July 17, 2006, is located at: http://www.sec.gov/news/otherwebcasts.shtml. Materials related to the Seniors Summit are located at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm.
In addition, the SEC has issued information for investors on promissory notes, “Broken Promises: Promissory Note Fraud,” located at http://www.sec.gov/investor/pubs/promise.htm.