UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16274 / September 8, 1999
SECURITIES AND EXCHANGE COMMISSION V. HIGHLAND FINANCIAL CORPORATION, KAY L. CAHILL, individually and d/b/a INTERDYNE LTD., MICHAEL B. CHALMERS, JOHN C. MATTHEWS, individually and d/b/a SUNLAND STATES INSURANCE AGENCY, ROGER MYATT and ROBERT ALBERDING
Case No. 4:99-CV-0719-D, USDC, NDTX (Fort Worth Division)
The U.S. Securities and Exchange Commission ("Commission") announced today that on September 2, 1999, Judge Sidney A. Fitzwater, United States District Judge for the Northern District of Texas, granted the Commission's request for an emergency asset freeze, the appointment of a Receiver, and other equitable relief to halt a fraudulent "prime bank" investment scheme. The Commission's Complaint charges that from April 1998 through August 1998, the defendants, including a convicted felon, raised approximately $9.5 million from 10 investors nationwide for a purported "trading program" in foreign bank instruments promising returns of as much as 1,000%. In reality, the trading program did not exist and approximately $2 million of investor funds were misappropriated for the personal benefit of the defendants. These funds were used to purchase an 11,000-square-foot house in Tyler, Texas, at a cost of approximately $1.2 million, for moving and travel expenses, and to purchase furniture and automobiles. A large amount of investor funds is also unaccounted for at the present time.
According to the Commission's Complaint, the scheme was devised and/or participated in by Kay L. Cahill ("Cahill"), Michael B. Chalmers ("Chalmers"), John C. Matthews ("Matthews"), Roger Myatt ("Myatt"), and Robert Alberding ("Alberding").
Cahill, age 55, is a resident of Tyler, Texas. Cahill conducted business under the name Interdyne Ltd. ("Interdyne"). Cahill developed the investment program and, through Interdyne, issued the interests in the program. In 1996, Cahill was convicted by the State of Kansas for the unlawful sale of unregistered securities.
Chalmers, age unknown, is last known to reside in London, England and is believed to be a Canadian citizen. Chalmers conducted business under the name Highland Financial Corp. ("Highland"). Chalmers is purportedly the trader and program manager for the investment program.
Matthews, age 46, is a resident of El Paso, Texas. Matthews is a self-employed insurance agent who conducted business under the name Sunland States Insurance Agency ("Sunland"). Matthews purportedly sold to investors the insurance policy guaranteeing the investment program.
Myatt, age 51, is a resident of Fort Collins, Colorado. Myatt solicited investors for the investment program.
Alberding, age 50, is a resident of Scottsdale, Arizona. Alberding is a self-employed sales and marketing consultant who conducted business under the name CanAmerican Business Capital, Inc. Alberding solicited investors for the investment program.
According to the Commission's Complaint, the defendants represented that investment funds would be pooled and used to trade in high-yield European bank instruments. They told investors that for each $1 million invested, the trading activities would generate profits of $10 million within 60 days with no risk. They also told investors that they would each receive $4.5 million, or 450%, as their return on investment and that the defendants would retain the remaining profits of $5.5 million, or 550%, as her compensation and for payment of sales and administration expenses. In reality, the prime bank trading program did not exist and the investment funds were not used to trade bank instruments. Of the approximately $9.5 million raised, approximately $2 million has not been returned to investors and a portion of this amount is unaccounted for at this time. The 11,000 square-foot house purchased with investor funds mentioned above was placed in the name of Terra Tech Systems ("Terra Tech), an entity controlled by Cahill, in order to conceal it from investors and regulators. Terra Tech has been named in the Commission's lawsuit as a relief defendant to ensure the return of any illegally obtained assets held by that entity. The defendants also made "ponzi" payments to investors (i.e., returned to them a portion of their investment principal) which they falsely represented were trading profits from the investment.
The Commission's Complaint further alleges that after the defendants failed to meet the payment terms under the investment, they continued their fraudulent scheme by lulling investors into believing that their funds were safe and that they would be soon paid according to the terms of their investment agreement.
The Court issued orders (1) freezing all assets of Highland, Cahill, Chalmers and Matthews; (2) freezing assets of Alberding to the extent those assets were derived from investor funds; (3) freezing assets of Terra Tech to the extent those assets were derived from investor funds; (4) requiring Highland, Cahill, Chalmers, Matthews, Myatt, Alberding and Terra Tech to furnish accountings of revenues, expenditures and assets; (5) prohibiting the destruction of documents; (6) authorizing expedited discovery; (6) requiring that the defendants repatriate assets held in foreign accounts; (7) requiring Cahill and Matthews to surrender their passports; and (8) appointing a temporary Receiver to recover assets for the benefit of investors. The Receiver is Peter A. Franklin III, of the Dallas law firm Locke Liddell & Sapp, LLP.
In its Complaint, the Commission alleges that Highland, Cahill, Chalmers, Matthews, Myatt and Alberding violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking a preliminary and permanent injunction restraining future violations of the antifraud provisions of the federal securities laws against all the defendants; an order requiring disgorgement of all wrongfully obtained profits plus prejudgment interest against Highland, Cahill, Chalmers, Matthews, Alberding and Terra Tech; and civil penalties against each defendant.