U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21583 / June 29, 2010
SEC v. Michael E. Kelly, et al., Case No. 1:07-CV-4979 in the United States District Court for the Northern District of Illinois
Court Enters Final Judgment Against Rockwall, Texas Resident Carl Q. Lee and his Company Carl Lee and Associates, Inc.
The Securities and Exchange Commission announced today that on June 23, 2010, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered a final judgment against Carl Q. Lee, of Rockwall, Texas, and Carl Lee and Associates, Inc. (CLA), Lee's business. The final judgment: (1) enjoined Lee and CLA from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, Rules 10b-5 and 10b-10 promulgated thereunder, and enjoined Lee from aiding and abetting violations of Rule 10b-10 of the Exchange Act; (2) ordered Lee and CLA to pay disgorgement in the amount of $1,416,557.82, plus prejudgment interest of $603,088.00, for a total of $2,019,645.82; and (3) ordered Lee to pay a civil penalty in the amount of $120,000.
The SEC's complaint in this matter charges that Michael E. Kelly and 25 other defendants, including Lee and CLA, participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Leases. Universal Lease investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others, including Lee and CLA, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Lee and CLA, collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges, the leasing agent was a small Panamanian travel agency controlled by Kelly, and for most of the scheme its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and the other defendants, including Lee and CLA, failed to disclose key facts about the Universal Lease investment, including the risks of the investment and that Kelly was paying commissions as high as 27% to the selling brokers. The SEC's action against the remaining defendants is pending.
For further information, see Litigation Release Nos. 20267 (Sept. 5, 2007), 20573 (May 14, 2008) , 20578 (May 15, 2008), 20579 (May 15, 2008), 20664 (July 31, 2008), 20679 (August 12, 2008), 20708 (Sept. 9, 2008); 20709 (Sept. 9, 2008), 20799 (November 6, 2008), 21003 (April 15, 2009) and 21481 (April 8, 2010); [SEC v. Michael E. Kelly, et al., Civil Action No. 07-cv-4979 (N.D. Ill.]