==========================================START OF PAGE 1====== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 15360 / May 6, 1997 SECURITIES AND EXCHANGE COMMISSION V. SOUTHWEST INCOME TRUST, ET AL., Civil Action No. 97-0953 PHX RCB The Securities and Exchange Commission ("Commission") announced that on May 5, 1997, it filed a lawsuit in federal court for fraud in the offer and sale of securities in three investment trusts: Southwest Income Trust; Advantage Income Trust; and Investors Trading Trust (the "Trusts"). The Commission named in its Complaint the Trusts and corporate trustees and their respective presidents, Palo Verde 136, Inc. and Steven R. Shoop ("Shoop"); Advantage Marketing Group, Inc. and Charles D. Brown; and FLC Corporation and Donn K. Phillips. The Trusts and the Trustees are all located in Arizona. The Commission also named in its Complaint Anthony Ghirardello Marriott ("Marriott"), a Los Angeles attorney. The Commission alleges in its Complaint that the defendants raised at least $10.7 million from approximately 149 investors in Arizona and California through the sale of interests in the Trusts and other investments. The defendants represented to investors that: investor funds would only be used to purchase and trade Treasury securities; investors would receive 1% per month in profits from trading Treasury securities; if the 1% monthly return from trading profits were not achieved, investors' funds would be returned; and only after payment of the 1% monthly return, would the Trustees, sales agents, and others be paid from excess trading profits. The Complaint further alleges that contrary to these representations, the defendants operated a Ponzi-like scheme that paid investors their 1% monthly return from other investors' funds, failed to return investors' funds after suffering large trading losses, misappropriated investor funds for their personal benefit, and the Trusts transferred over $3 million of investor funds to Bahamian bank accounts. The Complaint alleges that all defendants violated the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder). The Complaint further alleges that the Trusts, Shoop, and Charles D. Brown violated the securities registration provisions (Sections 5(a) and 5(c) of the Securities Act), and that the Trusts violated the investment company registration provisions (Section 7(a) of the Investment Company Act). In response to the Commission's action, On May 5, 1997, the United States District Court, District of Arizona, froze the ==========================================START OF PAGE 2====== assets of Shoop and Marriott pending a hearing to determine if the assets should remain frozen pending final resolution of the Commission's - 2 - action. To further protect investor funds, the Court additionally ordered Shoop and Marriott to provide a detailed accounting of personal assets and investor funds raised, and enjoined them from dissipating any assets. The Commission is also seeking permanent injunctions against all defendants, as well as, disgorgement and/or civil penalties as to some of the defendants. The Commission acknowledges the cooperation and assistance provided in this matter by the Securities Division of the Arizona Corporations Commission.