U. S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21324 / December 4, 2009

SEC v. Canopy Financial, Inc. and Jeremy J. Blackburn, Case No. 09-CV-7429, USDC, N.D.Ill.

SEC OBTAINS ASSET FREEZE AGAINST CANOPY FINANCIAL, INC.

CO-FOUNDER IN LAWSUIT ALLEGING $75 MILLION OFFERING FRAUD AND MISAPPROPRIATION OF INVESTOR FUNDS

The U.S. Securities and Exchange Commission (Commission) announced that fraud charges, a TRO and Asset Freeze Order imposed against Jeremy J. Blackburn were unsealed on December 2, 2009, by the Honorable Blanche M. Manning in the U.S. District Court for the Northern District of Illinois. The orders were entered on November 30, 2009. Jeremy J. Blackburn, a co-founder and former President and Chief Operating Officer of privately-held Canopy Financial, Inc. (Canopy), is charged with engaging in a scheme to defraud investors in a $75 million private placement offering and misappropriating investor funds. The Commission’s Complaint seeks, among other things, permanent injunctions against Blackburn and Canopy, which provides services to clients for the administration and management of their employees’ health services and flexible spending accounts. Canopy is headquartered in Chicago, IL and has other offices in San Francisco, CA and Plainsboro, NJ.

Filed on November 30, 2009 in an emergency action, the Commission’s Complaint alleges:

• From at least October 2008 through at least August 2009, Canopy, through Blackburn, induced investors to invest in a private placement offering for preferred shares of Canopy by providing them with false and misleading information regarding Canopy’s financial condition.
   
• Blackburn knowingly provided investors with falsified financial statements, a falsified bank statement and a falsified “KPMG” audit opinion. These documents purported to show that Canopy had a much healthier cash balance and much more substantial client base than it actually had. Blackburn also falsified at least one bank statement to show an account balance of approximately $8.9 million, when in fact the account was a custodial account of a Canopy client that held only approximately $86,952.
   
• Canopy raised approximately $75 million from investors and paid approximately $40 million in redemptions to existing investors, including Blackburn, who redeemed 250,000 shares in exchange for approximately $1.625 million. Blackburn also misappropriated at least $1.7 million from the offering into his personal bank accounts.
   
• The Defendants’ fraud came to light when KPMG discovered that Canopy had been claiming that its financial statements for 2007 and 2008 had been audited by KPMG. In fact, KPMG had never been retained by Canopy to audit its financial statements and had never opined on the financial condition of the company. KPMG issued a cease-and-desist letter to Canopy demanding that it stop the unauthorized use of KPMG’s name and the audit report purportedly issued by KPMG.

In addition to seeking permanent injunctions against Blackburn and Canopy for violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], the Commission’s Complaint seeks the disgorgement of ill-gotten gains, plus prejudgment interest thereon, and civil penalties.

http://www.sec.gov/litigation/litreleases/2009/lr21324.htm