U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20621 / June 17, 2008
Securities and Exchange Commission v. W Financial Group, LLC, Adley H. Abdulwahab a/k/a Adley Wahab, Michael K. Wallens, Sr., and Michael K. Wallens, Jr., (U.S.D.C., Northern District of Texas, Dallas Division, Civil Action No. 3:08-CV-0499-N)
SEC Obtains Emergency Relief to Preserve Assets in Lawsuit Involving Fraudulent Securities Offering Targeting Elderly Investors
On June 5, 2008, the Securities and Exchange Commission obtained an order freezing assets and granting other emergency relief in a pending action in Dallas federal court involving what the Commission contends is a fraudulent offering of securities, known as Secured Debt Obligations ("SDOs"), by W Financial Group, LLC. ("W Financial"). The district court entered orders freezing the defendants' assets, requiring an accounting and repatriation of assets, and ordered defendants to preserve documents and submit to expedited discovery. The Court scheduled a preliminary injunction hearing for June 25, 2008, at which time the Court will consider the Commission's request to appoint a receiver to marshal and conserve assets for the benefit of defrauded investors.
The Commission's Complaint, filed on March 21, 2008, alleges that the defendants, directly and through sales agents, raised at least $17.9 million from at least 182 investors between September 2006 and February 2007. According to the Complaint, W Financial investors, primary senior citizens and retirees, were lured into purchasing SDOs through a series of misrepresentations and omissions that portrayed SDOs to be as safe as FDIC-backed certificates of deposit. The Complaint further alleges that the defendants misappropriated and misused the majority of W Financial investor funds, spending millions of dollars, for example, to purchase and operate high-risk business enterprises such as a retail electric power provider and a custom home-building company. The defendants are charged with securities fraud under both the Securities Act of 1933 and the Securities Exchange Act of 1934 and with conducting an unregistered offering under the Securities Act. In addition to the relief granted by the court, the Complaint seeks civil penalties and disgorgement of ill-gotten gains against each defendant.
Simultaneously with the filing of the Complaint, the Commission, with the consent of defendants, asked the Court to appoint a Special Master to oversee the liquidation by defendants of certain assets and to take custody of the proceeds from these sales. Subsequently, the Court appointed Vernon T. Jones, Jr. as Special Master.
The Commission contends that the defendants failed to comply with the order appointing the Special Master and concealed material information from the Commission, the Special Master and their own counsel. Based on this conduct and on the egregiousness of the defendants' fraud against investors, the Commission maintains that the Court should grant more stringent remedies to preserve funds and assets to provide investors with monetary relief.
For more information about this case, refer to Litigation Release No. 20515 (April 3, 2008)