U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20657 / July 29, 2008
Securities and Exchange Commission v. Trinity International Enterprises, Inc., CFO-5, LLC, Stanley W. Anderson, Edwin A. Smith, Charles L. Kennedy, Michael D. Norton, and Nicholas R. Fair, Civil Action No. 08-CV-01594 LTB MEH (D. Colo., filed July 28, 2008)
On July 28, 2008, the Securities and Exchange Commission filed an injunctive action in the United States District Court for the District of Colorado relating to the fraudulent and unregistered offer and sale of over $5 million of "prime bank" securities. The Commission charged Stanley W. Anderson of Arvada, Colorado and Edwin A. Smith of Denver, Colorado with orchestrating the fraudulent scheme through Trinity International Enterprises, Inc. ("Trinity") and CFO-5, LLC, Colorado corporations controlled by Anderson and Smith. The Commission also charged Michael D. Norton of Denver, Colorado, Nicholas R. Fair of Ft. Collins, Colorado, and Charles L. Kennedy, a pastor from Tampa, Florida, with participating in the fraudulent scheme by soliciting investors.
The Commission's complaint alleges that, from approximately April 2005 through July 2007, the defendants raised at least $5.1 million from investors. They solicited investors by misrepresenting that they would use the invested funds to purchase and sell in foreign medium term notes ("MTNs"). However, because these MTNs did not exist, investor funds were not used to buy and sell these securities. According to the Complaint, Anderson and Smith instead used investor money for their personal expenses and paid unrelated civil judgments and loans, Ponzi payments to other investors, and compensation to salespeople, among other things. The Commission also alleges that Kennedy, Norton, and Fair acted as salespeople for the scheme and, with Anderson and Smith, continued to solicit and lull investors through at least July 2007. Additionally, the Complaint alleges that Kennedy did not forward any of the funds he raised from other pastors who shared his religious affiliation, rather he spent all of these funds for his personal use. The Complaint also alleges that all of the defendants participated in unregistered offers and sales of securities, and that Anderson, Smith, Kennedy, Norton, and Fair acted as unregistered broker-dealers.
The Commission's complaint alleges that all of the defendants violated the antifraud provisions of the securities laws in Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 ("Securities Act"). The complaint also alleges that all of the defendants violated the registration provisions in Sections 5(a) and 5(c) of the Securities Act. Finally, the complaint alleges that Anderson, Smith, Kennedy, Norton, and Fair violated Section 15(a) of the Exchange Act by acting as unregistered broker-dealers. The Commission seeks disgorgement, plus prejudgment interest, and civil penalties against all of the defendants.