U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21009 / April 22, 2009
Securities and Exchange Commission v. Benny L. Judah, et al., Civ. Action No. 5:09-CV- 0087-C (United States District Court for the Northern District of Texas, Lubbock Division)
SEC Sues Lubbock, Texas Businessman for Conducting Fraudulent $40 Million Debenture Offering
On April 21, 2009, the Commission filed an emergency action in the Lubbock Division of the United States District Court for the Northern District of Texas against Lubbock, Texas businessman Benny L. Judah and his company, Excel Lease Fund, Inc. Judah and Excel were subjects of a previous SEC enforcement action in 2001, which also involved allegations of fraud in connection with the sale of unregistered notes. See SEC v. Benny L. Judah and Excel Lease Fund, Inc., Civil Action No. 5:01-CV-045 (N.D. Texas, Lubbock Division, January 31, 2001); SEC Litigation Rel. No. 16882 (January 31, 2001).
The Commission alleges that Judah and Excel raised approximately $40 million from hundreds of investors through a high-yield debenture offering that started in January 2006. The Commission further alleges that Judah and Excel made several false and misleading representations and omissions in connection with the offer and sale of the debentures. Among other things, the Commission claims that Judah and Excel represented to investors that investor funds would be used to retire an earlier series of debentures and for certain other legitimate business purposes. In fact, however, Judah used millions in investor proceeds to fund his securities day-trading habit and to make loans to other companies he owned. These unauthorized and undisclosed misuses of funds resulted in losses of millions of dollars. In addition, Judah and Excel failed to disclose material related party transfers to other companies Judah owned and overstated the assets supposedly backing the debentures by at least 30%.
The complaint alleges that Judah and Excel violated the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint requests permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against the Defendants. In addition, the Commission has filed motions asking the Court to enter orders freezing the assets of Judah and Excel and appointing a receiver to collect, marshal, manage and distribute these assets for the benefit of investors.
Without admitting or denying the Commission's allegations, Judah and Excel have consented to, and the Court has entered, the asset-freeze and receivership orders, as well as permanent injunctions against future violations of the anti-fraud provisions. Judah has also consented to, and the Court has entered, an injunction prohibiting him or any entity he owns or controls from issuing securities in the future.