U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19928 / November 30, 2006

SEC v. Jonathan Curtis Papa, CR 03-537 (C.D. Cal.)

Jonathan C. Papa Sentenced to Three Years Imprisonment for Running a Multi-Million Dollar Ponzi Scheme

On November 6, 2006, United States District Judge Dean D. Pregerson in Los Angeles sentenced Jonathan Curtis Papa to 36 months imprisonment based on Papa's guilty plea to four counts of mail fraud against the elderly and two counts of money laundering. Judge Pregerson also ordered Papa to pay nearly $9.2 million in restitution, but waived additional fines based on Papa's inability to pay. In May 1999, the Commission filed a civil action against Papa alleging that he conducted an offering fraud from 1995 to 1999.

Papa fled the U.S. in 1999 but was arrested in Hong Kong in August 2005 and extradited to the U.S. in April 2006. In his plea agreement, Papa admitted that he and his staff of salespeople solicited investors to purchase investments in Papa Holdings, Inc. and four restaurant subsidiaries from December 1995 through February 1999. Papa was the chief executive officer, chief financial officer, secretary, and/or chairman of the board of directors of Papa Holdings and certain restaurant subsidiaries. Papa acknowledged that a large portion of the money raised to open new restaurants was instead transferred to operating subsidiaries to fund operations at existing restaurants, which were losing money. In the plea agreement, Papa also admitted that he misled investors about the amount of commissions paid on stock sales, the financial health of his companies, and the security of the investment.

The Commission's complaint alleged that from November 1995 to January 1999, Papa and Papa Holdings raised over $21 million from about 1,300 investors in several unregistered stock offerings for Papa Holdings and four restaurants subsidiaries. According to the Commission's complaint, Papa and Papa Holdings failed to disclose sales commissions of 30% to 48% and misrepresented that money from the restaurant subsidiaries' offerings would be used to develop open new restaurants, when in fact the money was used to pay for losses at existing restaurants. On June 1, 1999, with Papa's consent in the Commission's action, the District Court permanently enjoined Papa and Papa Holdings from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the securities registration provisions of Section 5(a) and 5(c) of the Securities Act, and the broker-dealer registration provisions of Section 15(a) of the Exchange Act. On March 8, 2000, the District Court ordered Papa to pay over $3.6 million in disgorgement, prejudgment interest, and civil penalties. On September 14, 2006, the Commission barred Papa from association with any broker or dealer.

For further information, see Litigation Release Nos. 16470 (March 16, 2000) and 16141 (May 13, 1999) and Exchange Act Release No. 54441.