U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20469 / February 27, 2008
Securities and Exchange Commission v. James B. Duncan; Hendrix M. Montecastro; Maurice E. Mcleod; Pacific Wealth Management, LLC based in Murrieta, California; Stonewood Consulting, Inc.; and Total Return Fund, LLC, Defendants, and Christopher J. Oetting, DBA Oetting Industries; Anthony M. Contreras; and Biocybernaut Institute, Inc., Relief Defendants, Case No. CV 08-01323 CAS (CTx) (C.D. Cal.)
SEC Charges Six Defendants in Multi-Million Dollar Securities Fraud Targeting the Filipino Community, Church Members, and Military Personnel
The Securities and Exchange Commission ("Commission") on Wednesday, February 27, 2008, filed civil securities fraud charges stemming from a $10 million securities fraud that victimized over 75 investors from several affinity groups, including the Southern California Filipino community, fellow church members, and military personnel.
The Commission's complaint, filed in U.S. District Court in Riverside, California, alleges that James B. Duncan, Hendrix M. Montecastro, and Maurice E. McLeod, operating through Murrieta, California-based Pacific Wealth Management, LLC ("PWM") and Murrieta-based Stonewood Consulting, Inc., promised investors "financial freedom" within three years in exchange for control over their finances. The defendants offered investors securities in the form of investment contracts to purchase and maintain investment homes on behalf of investors. The complaint further alleges that James Duncan raised $1.2 million in a separate offering of preferred membership units in Total Return Fund, LLC, to approximately 20 investors. The complaint alleges that the proceeds raised in both offerings were commingled and used to run a Ponzi-like scheme that fell apart in late 2006.
The Commission's complaint further alleges that between October 2004 and June 2006, the defendants solicited investors using investment seminars and "referral partners," one of which was a member of the Air Force who solicited his fellow servicemen. As alleged in the complaint, the defendants falsely represented to investors that their funds would be invested in real estate, stocks, foreign currency, precious metals, and various other investments, and that the earnings on such investments would help make the mortgage payments on the investment homes purchased on their behalf. The complaint alleges that, instead of investing client funds as promised, the defendants operated a Ponzi-like scheme by using new investor money to make the mortgage payments on previously purchased investment homes.
Further, the complaint alleges that the defendants failed to disclose several key facts about the purchase of the investment homes, including that the defendants charged exorbitant real estate transaction fees financed by the investors, and that the defendants submitted false mortgage loan applications on behalf of investors. The complaint also alleges that Duncan, who was touted as a financial genius, failed to disclose his prior securities laws violations.
Finally, the complaint alleges that Duncan and Total Return Fund misrepresented how investor money would be used. Specifically, the complaint alleges that while the Total Return Fund offering documents stated that 95% of investor funds would go towards the purchase of real estate, business assets, or accounts receivable, in fact, investor funds were used to pay returns to prior investors, and were used as part of the PWM fraud.
The Commission's complaint alleges that the defendants violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint also alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties against each of the defendants. The complaint also names Christopher J. Oetting, Anthony M. Contreras, and Biocybernaut Institute, Inc., as relief defendants, alleging that they received ill-gotten gains from the defendants' fraudulent conduct.