U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 22040 / July 15, 2011
Securities and Exchange Commission v. Jeffery A. Lowrance, et al., Case No. CV-11-3451
SEC CHARGES OPERATOR OF $21 MILLION FOREX PONZI SCHEME
The Securities and Exchange Commission on July 14, 2011 filed fraud charges against the CEO of a purported foreign currency trading firm, alleging he scammed hundreds of investors with false promises of high, fixed-rate returns while secretly using their money to fund his start-up alternative newspaper.
First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.
The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah by promising huge profits from a specialized foreign currency trading program. In reality, First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted investors by purporting to share their Christian values and limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
According to the SEC’s complaint, filed in federal district court in San Jose, California, Lowrance and First Capital promised investors a “predictable monthly income,” with monthly returns up to 7.15 percent through foreign currency trading. Some investors were told their investment was guaranteed, and were given bogus letters of credit. First Capital also published a spreadsheet purporting to show its multi-year history of profitable trades. In fact, the trades were fictitious. Instead of engaging in foreign currency trading as claimed, Lowrance and First Capital secretly diverted investor funds to pay fake returns to other, earlier investors, to pay Lowrance (despite his failure to earn a profit for the investors), and to fund his newspaper.
Lowrance’s scheme began to unravel in June 2008 and Lowrance and First Capital had lost all of the investors’ money by September 2008. Nevertheless, Lowrance solicited at least an additional $1 million from at least 36 investors between June 2008 and February 2009 by continuing to tout First Capital’s fictitious high returns, the SEC alleges.
The Commission’s complaint alleges Lowrance and First Capital violated Sections Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 5 and 17(a) of the Securities Act of 1933, and seeks disgorgement, penalties, and other relief.