U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16698 / September 12, 2000
SECURITIES AND EXCHANGE COMMISSION v. REGALD B. SMITH,
The Securities and Exchange Commission ("Commission") announced that on September 7, 2000, Judge Joseph M. Hood of the United States District Court for the Eastern District of Kentucky entered an order of permanent injunction against Regald B. Smith ("Smith") of Pikeville, Kentucky, pursuant to Smith's consent, without admitting or denying the Commission's charges, enjoining Smith from violating the antifraud provisions of the federal securities laws, freezing Smith's assets, ordering him to account for and disgorge his ill-gotten gains and pay civil penalties in amounts to be determined, provide the Commission with expedited discovery and prohibiting the destruction of documents.
The Commission filed suit against Smith a day earlier seeking emergency relief in the form of a Temporary Restraining Order and asset freeze, among other things. In its complaint, the Commission accused Smith, a registered representative in Stifel Nicolaus's ("Stifel") Pikeville, Kentucky office, of perpetrating an 18-month scheme to defraud in which he misappropriated more than $5 million from at least 6 investors who were his brokerage clients. On August 28, 2000, Smith confessed to senior Stifel officials that he had conducted the scheme by conning clients into purchasing fictitious bonds, then diverting to his personal use the funds they gave him to invest.
The Commission alleged that Smith, age 55, was, employed by Stifel as the Investment Executive in charge of the Firm's Pikeville, Kentucky office. Smith stole his clients' funds by luring them into believing he had a "special situation" he could offer them. He told them that other Stifel Nicolaus clients' were interested, for one reason or another, in selling short-term bonds from their portfolio. The bonds were particularly attractive not only because they were short term, but also because they were tax-free and promised high yields. After his victims gave him money to purchase the bonds, Smith simply diverted their funds to his own personal use, including the renovation of the Hotel Anthony in Pikeville. To conceal his deceit, Smith told at least one of his victims at or about the time the first bond he sold to them was about to mature, that he could reinvest the client's original investment, plus accrued interest, into another tax-free bond. Smith's repeated this ploy until the victim had written and given Smith checks totaling $3.8 million, all of which Smith misappropriated. Smith also admitted that he tried to cover-up his scheme by, among other things, attempting to convince a bank officer to issue him copies of legitimate bond certificates which he could pass off as the fictitious bonds he was selling.
The Commission's complaint charged that Smith's scheme violated the antifraud provisions of 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 sought a temporary restraining order, preliminary injunction and permanent injunction against future antifraud violations, disgorgement with prejudgment interest, civil penalties, and an order freezing assets, expediting discovery, and prohibiting the destruction of documents.