United States Securities and Exchange Commission
Litigation Release No. 16578 / June 1, 2000
SECURITIES AND EXCHANGE COMMISSION V. CHARLES RICHARD HOMA et al., U.S. District Court for the Northern District of Illinois, Civil Action No. 99-Civ-6895 (N.D. Ill. June 1, 2000)
On June 1, 2000, the Securities and Exchange Commission sought to add 16 additional defendants to an ongoing case involving a massive Ponzi Scheme, bringing the total number of defendants charged in the case to 42. The additional defendants are Joseph Frederick Denson, Jr. of Durham, NC, D. Dean Pearson of Alpharetta, GA, John Telford Snipes of Vero Beach, FL, John Martin Carlson of Greyslake, IL, Carlson National Brokers, Ltd. of Greyslake, IL.,Global Management Enterprises, LLC Pearson Enterprise Trust, Paramount Holdings, LLC, Premiere Holdings, LLC, Preferred Returns, Inc., JTP, Inc., Tradewinds Holdings, LCC, Peak Holdings, LLC, Harbor Holdings, LLC, Rolls Royce, Ltd, and Morningstar, Ltd. The defendants allegedly raised approximately $300 million in total over several years. The SEC is seeking a court order prohibiting future violations of the federal securities laws by the defendants, an order freezing the assets of all of the defendants, and disgorgement and civil penalties against the defendants.
The SEC brought the scheme to a halt when it obtained a Temporary Restraining Order (TRO) against the original 26 defendants, including Michael Gause and Charles R. Homa, on October 15, 1999. Since the TRO, 19 defendants have agreed to the entry of permanent injunctions against them, including Gause and Homa. Gause was arrested for his role in the scheme and has been held in federal custody since October 15, 1999.
The Complaint alleges that Gause and Homa stood at the top of a multi-layered marketing scheme that sold 9-month notes and bonds as part of a massive Ponzi scheme that may have raised as much as $300 million since its inception. The Complaint further alleges that the new defendants raised at least $114 million in the scheme and violated the federal securities laws by making false claims that the money they were raising would be used to fund loans to companies engaged in the car title loan industry and the payday loan industry. The Complaint alleges that many of the defendants were told that the funds would be loaned to Cash 4 Titles, a company operated by Homa. The Complaint alleges that only a small fraction of the money was used for its intended purpose. Instead, the defendants, after transferring the money to Cayman Islands accounts, used the money to pay existing investors, pay marketer commissions and pay personal expenses.
The Complaint alleges that all of the defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also alleges that defendants who sold the 9-month notes and bonds, except Carlson and Carlson National Brokers, Ltd., acted as unregistered broker-dealers in violation of Section 15(a) of the Exchange Act and also committed violations of Section 15(c) of the Exchange Act and Rule 15c1-2 thereunder.
The SEC has also moved to include Linda L. Nichols and Lindy L. Gause, the wives of two original defendants, Steven S. Nichols and Michael Gause, and Nichols and Associates, owned by Linda L. Nichols, as relief defendants because they have no legitimate claim to money and assets currently in their possession that were acquired with illegally-obtained investor funds.
Previously, the Court appointed Phillip S. Stenger to be Receiver for the assets of Homa and Gause. He also serves as joint liquidator with Ernst & Young in Cayman Islands proceedings relating to the scheme.