U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20512 / March 27, 2008
Securities and Exchange Commission v. Gary L. McDuff, Gary L. Lancaster, and Robert T. Reese, Civil Action No. 3-08-CV-526 (U.S.D.C./N.D. Texas, Dallas Division)
SEC Charges Three With Fraudulently Raising Over $11 Million From More Than 100 Investors
On March 26, 2008, the Securities and Exchange Commission (Commission) filed a complaint in the United States District Court for the Northern District of Texas against Gary L. McDuff, Gary L. Lancaster, and Robert T. Reese, for their roles in the fraudulent and unregistered offer and sale of interests in the Lancorp Financial Fund Business Trust (Lancorp Fund).
In its complaint, the Commission alleges that in early 2003, Lancaster created the Lancorp Fund at McDuff's direction. McDuff and Lancaster then created a materially false and misleading Private Placement Memorandum (PPM) for the Lancorp Fund, and between at least March 2003 and July 2005, Reese, McDuff and Lancaster offered and sold interests in the Lancorp Fund with false promises concerning the permissible investments, the payment of commissions, and the payment of management fees. Instead, the Complaint alleges that the defendants directed the Lancorp Fund to invest over $9 million in a fraudulent, high-yield Ponzi scheme, paid McDuff and Reese over $300,000 in undisclosed commissions, and paid Lancaster a management fee well in excess of that allowed by the PPM.
The Complaint alleges that McDuff, Lancaster, and Reese violated Sections 5(a), 5(c) and 17(a) or the Securities Act of 1933 (Securities Act), and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also alleges that Lancaster violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act), and that McDuff and Reese aided and abetted Lancaster's Advisers Act violations. The Complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and civil penalties.
Without admitting or denying the allegations set forth in the Complaint, defendants Lancaster and Reese have consented to the entry of a final judgment permanently enjoining them from engaging in the violations set forth above. Lancaster has agreed to an order finding him liable for disgorgement of $336,229, plus prejudgment interest of $56,156.39, and Reese has agreed to an order finding him liable for disgorgement of $26,792, plus prejudgment interest of $4,474.75. However, payment of those amounts will be waived, and no civil penalties imposed, based on their respective sworn statements of financial condition and other documents. The Commission's action against McDuff is continuing.