U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22621 / February 20, 2013
Securities and Exchange Commission v. Douglas F. Vaughan, Civil Action No. 10-263-MV-WPL (D.N.M.)
District Court Enters Judgment against New Mexico Ponzi Schemer
The Securities and Exchange Commission (Commission) announced today that on February 14, 2013, the U.S. District Court for the District of New Mexico entered a consent judgment against Douglas F. Vaughan (Vaughan), a Ponzi schemer who was convicted of fraud in a related criminal case. In addition to enjoining Vaughan from violating federal securities antifraud, broker-dealer, and securities offering registration laws, the court ordered Vaughan to disgorge $43,658,821 in ill-gotten gains. The court deemed the disgorgement order to be satisfied by an order of restitution for the same amount and an order of forfeiture in the criminal prosecution.
On March 22, 2010, the Commission filed an emergency civil action in the United States District Court for the District of New Mexico charging Vaughan and his companies, The Vaughan Company, Realtors, Inc. (Vaughan Realtors), and Vaughan Capital, LLC (Vaughan Capital) with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Vaughan and Vaughan Realtors were also charged with violations of Section 15(a)(1) of the Exchange Act. The complaint alleged that Vaughan used the companies, which he controlled, to operate a Ponzi scheme that relied on new investors' funds to pay above-market returns to existing investors. The complaint alleged that Vaughan began selling promissory notes, which were securities, sometime in 1993 and continued offering the notes to investors until at least January 31, 2010. The scheme collapsed when Vaughan's obligations to pay returns to investors became greater than his ability to raise new funds.
On March 24, 2010, the court entered an order temporarily restraining Vaughan and his companies, prohibiting the destruction or alteration of documents, freezing funds and other assets, providing for expedited discovery, and requiring an accounting of investor funds. Three weeks later, the court entered a preliminary injunction against Vaughan, Vaughan Capital, and Vaughan Realtors that granted all of the relief that the Commission requested.
On February 24, 2011, a federal grand jury in New Mexico handed up an indictment charging Vaughan with, among other charges, mail and wire fraud and making false statements to the Commission. Vaughan pleaded guilty and, on September 5, 2012, was sentenced to 12 years in prison, ordered to pay restitution of $43,658,821 under the Mandatory Victims Restitution Act, and directed to forfeit $74,745,724 to the United States.
The Commission has also resolved its claims against Vaughan Capital, which is now defunct, and Vaughan Realtors, which no longer has operations and is under the control of an independent bankruptcy trustee. On March 2, 2011, the district court entered a judgment against Vaughan Realtors with the consent of the Chapter 11 Bankruptcy Trustee. On January 7, 2013, the court entered a default judgment against Vaughan Capital. The judgments against Vaughan Realtors and Vaughan Capital permanently enjoin them from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The judgment against Vaughan Realtors also enjoins the company from violating the broker-dealer provisions of Section 15(a)(1) of the Exchange Act.
For further information about the case, see Litigation Release No. 21459 (March 24, 2010).