U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20813 / November 19, 2008
Securities and Exchange Commission v. J.C. Reed & Company, Inc., J.C. Reed Advisory Group, LLC, Barron A. Mathis, and Estate of John C. Reed, Lana L. Reed, Executor, Civil Action No. 3:08-CV-1112 (M.D.TN)
The Securities and Exchange Commission ("Commission") announced today that on November 18, 2008 it filed a Complaint For Injunctive and Other Relief (the "Complaint") in the United States District Court for the Middle District of Tennessee against the following four defendants arising out of an alleged $11 million securities offering fraud based in Tennessee: (1) J.C. Reed & Company, Inc. ("JC Parent"); (2) J.C. Reed Advisory Group, LLC ("JC Advisory"); (3) Barron A. Mathis ("Mathis"); and, (4) the estate of John C. Reed, Lana L. Reed, Executor ("Reed's Estate"). Corporate founder John C. Reed ("Reed") died on June 7, 2008. JC Advisory, a wholly-owned subsidiary of JC Parent, is registered with the Commission as an investment adviser. In addition to JC Advisory, JC Parent owned a mortgage banking subsidiary and several other related businesses. JC Parent and JC Advisory recently filed bankruptcy petitions in United States Bankruptcy Court for the Middle District of Tennessee.
The Commission's Complaint alleges that, at various times from no later than 2005 through at least September 2008, JC Parent, JC Advisory, Reed and Mathis facilitated the offer and sale of more than $11 million of JC Parent stock in unregistered transactions to over 100 investors in several states. According to the Complaint, JC Parent, JC Advisory, and Reed misrepresented and omitted material facts to investors relating to the value of the investors' stock, JC Parent's revenues and profitability, the use of key man life insurance proceeds for redemptions of Reed's JC Parent stock, and undisclosed sales commissions. The Complaint also alleges that Mathis promoted JC Parent stock to advisory clients and misrepresented material facts to investors about undisclosed sales commissions. In addition, the Complaint alleges that JC Advisory used JC Parent's inflated stock values to falsely report assets under management as JC Advisory's basis for registration with the Commission and on reports filed with the Commission.
In its Complaint, the Commission seeks (1) preliminary and permanent injunctions from future violations against JC Parent, JC Advisory and Mathis; (2) disgorgement of ill-gotten gains and unjust enrichment, with prejudgment interest, from JC Parent, JC Advisory, Mathis, and Reed's Estate; (3) civil money penalties from JC Parent, JC Advisory, and Mathis; and, (4) an order expediting discovery, preventing document destruction, and granting such other relief as the court may deem appropriate. The Commission seeks such relief based on (1) alleged violations by JC Parent, JC Advisory, Reed, and Mathis of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) alleged violations by JC Advisory, Reed, and Mathis of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (the "Advisers Act"); and, (3) alleged violations by JC Advisory of Sections 203A and 207 of the Advisers Act.
The Commission acknowledges the assistance and cooperation of the State of Tennessee Department of Commerce and Insurance, Securities Division, in bringing this case.