U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20946 / March 12, 2009
SEC v. Brian J. Smart, et al., Civil Action No. 2:09-cv-00224-DAK (D. Utah)
SEC Halts Fraudulent Ponzi-like Scheme
On March 11, 2009, the Securities and Exchange Commission obtained an order temporarily restraining Brian J. Smart and a private entity controlled by him, Smart Assets, LLC, from continuing to engage in the fraudulent offer and sale of securities. The Honorable Bruce S. Jenkins of the United States District Court for the District of Utah also froze the defendants' assets, ordered that discovery be accelerated and that defendants be prohibited from destroying documents, ordered the defendants to promptly provide sworn accountings of investor funds and other assets, and ordered that a preliminary injunction hearing be held on March 20, 2009, to determine if the interim relief should be continued.
The Commission's Complaint, filed on March 11, alleges that Smart, a resident of Lehi, Utah, and Smart Assets engaged in a Ponzi-like scheme in the offer and sale of promissory notes and other securities over a period extending back at least six years. According to the Complaint, the defendants fraudulently raised approximately $1.68 million from investors, including senior citizens. The Complaint further alleges that Smart went to great lengths to convince investors that he was a sophisticated financial planner, when in fact he was misappropriating funds for his own personal use and investing the remaining funds entrusted to him in illiquid and ill-fated real estate ventures. According to the Complaint, Smart falsely represented to investors that he was providing a conservative, sound investment opportunity for them to receive regular, monthly income. The Complaint also alleges that Smart solicited additional investors by providing these new investors with promissory notes and "membership certificates" in Smart Assets, claiming an interest payable on the notes ranging from 8.5% to 18% interest per annum. The Complaint further alleges that the defendants offered promissory notes to other investors falsely representing that they were using the invested money to lend out at higher rates. The actual uses to which the money was put were allegedly not disclosed to investors. According to the Complaint, Smart, through Smart Assets, operated a Ponzi-like scheme by using proceeds obtained from new investors to make payments to early investors. Smart is further alleged to have misappropriated approximately $1.68 million of investor money for personal use, including purchasing a home and paying for his living expenses.
The Complaint alleges that Smart and Smart Assets violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to emergency and preliminary relief, the Commission's Complaint is seeking permanent injunctions, disgorgement and civil penalties.