U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20252 / August 23, 2007
Securities and Exchange Commission v. Secure Investment Services, Inc., American Financial Services, Inc., Lyndon Group, Inc., Donald F. Neuhaus, and Kimberly A. Snowden, Case No. 2:07-CV-01724-LEW-CMK (E.D. Cal. August 23, 2007)
SEC Files Action to Halt $25 Million Fraudulent Scheme Preying Upon Retirement Savings of Senior Citizens
Continuing its crackdown on financial fraud against senior citizens, the Securities and Exchange Commission today filed an emergency action to shut down a $25 million Ponzi scheme that victimized hundreds of senior and other investors nationwide who bought fractional ownership interests in life insurance policies.
The SEC asked the federal district court in Sacramento, Calif., to grant the SEC's request for an order temporarily prohibiting further sales of the products, freezing the assets, and appointing a receiver to take control of operations in order to manage and preserve remaining investor funds.
The Commission alleges that Donald Neuhaus of Redding, Calif., his daughter Kimberley Snowden, and their company Secure Investment Services, Inc., orchestrated the Ponzi scheme that falsely promised safe, secure and profitable interests in life insurance policies known as "viaticals" while failing to disclose the dire financial condition of the investment venture. Many of the investors were elderly and invested their retirement savings. The Commission also alleges the father-daughter fraudsters pocketed $700,000 for their personal use while the scam was on the verge of collapse.
According to the Commission's complaint, Neuhaus and Snowden sold shares of life insurance policies, calling them "bonded life settlements." They persuaded investors to buy the securities by representing that their money would be used to purchase and pay the necessary premiums on the life insurance policies. They promised returns up to 125 percent when the person insured by the policy died.
The Commission's complaint alleges that Neuhaus and Snowden instead used investors' money for their own personal use and to cover the premiums on other insurance policies owned by other groups of investors. Their conduct constituted a Ponzi scheme in which every new investor was being defrauded to provide the cash needed to conceal the misrepresentations to an earlier group of investors. They failed to inform investors that the enterprise was on the brink of collapse, and that investors risked losing everything if life insurance policies expired due to lack of payment.
The Commission further alleges that Neuhaus and Snowden misled investors by providing them with life expectancy estimates supposedly certified by a physician who was, in reality, a convicted felon falsely holding himself out as a physician. They falsely claimed that the investments were protected by bonding companies. But these were, in fact, unlicensed overseas firms with no assurance of actually repaying investors.
The Commission's complaint charges the defendants with securities fraud under Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and with conducting an unregistered offering under Sections 5(a) and 5(c) of the Securities Act. The complaint seeks temporary, preliminary, and permanent injunctions, disgorgement of ill-gotten gains, civil penalties against each defendant, and an accounting.