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U.S. Securities and Exchange Commission

United States Securities and Exhange Commission

Litigation Release No. 16570 / May 31, 2000


The Securities and Exchange Commission today announced that on May 31, 2000 it filed suit in the Southern District of Texas against eight insurance salesmen and a Michigan corporation and its president, also an insurance salesman, alleging that they fraudulently sold more than $13.5 million in worthless promissory notes to approximately 140 elderly investors. The promissory notes were issued by a now defunct South Carolina company, which was previously sued by the SEC ( SEC v. Chemical Trust, et. al., Case No. 00-8015 - CIV-RYSKAMP (S.D. Fla.), Lit. Rel. No. 16416, January 21, 2000). The defendants named in the SEC's current suit are:

  • James Russell Hicks, age 45, and his wholly-owned company, Westshore Agency of Michigan Inc. The Complaint alleges, among other things, that Hicks and his company, both residents of Byron City, Michigan, recruited sales agents to sell the promissory notes, and distributed false and misleading sales materials.

  • Edward Neel Cox, age 54, a resident of Houston, Texas. The complaint alleges that Cox offered and sold the promissory notes under the assumed name, Regal Financial Group. Cox also recruited other salesmen to sell the promissory notes under the Regal name.

  • Billy Wayne Sparkman, age 49, the executive vice president of Regal, Joseph Lee Covington, age 50, a Regal account executive, and Charles F. Johnson, age 60, also a Regal account executive. It is alleged that these defendants, all residents of College Station, Texas, offered and sold the promissory notes in the Houston and College Station area and recruited other salesmen to sell the notes.

  • Stephen T. Hoyl, age 36, a resident of Amarillo, Texas; Danny R. Mayfield, age 42, a resident of Lubbock, Texas; Randy J. Post, age 40, a resident of Houston, Texas; and Benny A. Sides, age 52, a resident of Odessa, Texas. The Complaint alleges that these defendants also fraudulently offered and sold the promissory notes under the Regal name.

The Commission's Complaint alleges that the defendants targeted the senior citizen community, promising investors annual returns of between 9.25% and 15%. The defendants also claimed that the principal invested was guaranteed through surety bonds issued by a third-party surety. In reality, the investment was a nationwide "ponzi" scheme and the purported surety company, which was operated by a convicted felon, had no assets to support the surety bonds it issued to investors.

The Complaint alleges that the Regal defendants placed advertisements in local newspapers specifically targeting elderly investors with promises of "no risk" and "guaranteed income." One defendant even placed advertisements in the obituary section of a newspaper.

All of the individual defendants in this matter were licensed insurance agents who, it is alleged, used their position of trust to sell the fraudulent investment to existing clients as well as to new clients solicited through the newspaper advertisements they placed. The defendants knew that many of the investors liquidated their conservative investments, such as annuities and bank certificates of deposit, to invest in the promissory notes. It is alleged that the defendants knowingly withheld material information from investors, including the exorbitant commissions paid to the defendants and the fact that several states had taken regulatory action against the issuer.

As a result of the misconduct, the Complaint charges the defendants with violating the securities registration and antifraud provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities and Exchange Act of 1934, and the Commission's Rule 10b-5. The defendants are also charged with acting as unregistered broker-dealers in violation of Section 15(a) of the Exchange Act. The Complaint seeks permanent injunctive relief against the defendants, an accounting, disgorgement of ill-gotten profits, and civil money penalties.

The Commission would like to acknowledge the outstanding cooperation of the Texas State Securities Board, who worked with the Commission in its investigation.