SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16821 / December 11, 2000
SECURITIES AND EXCHANGE COMMISSION v. PERENNIAL FUND I LP, et al. (U.S.D.C., Northern District of California/San Jose, Civil Action No. C00-21181)
On November 20, 2000, Judge James Ware, United States District Court for the Northern District of California, San Jose Division issued an Ex Parte Order Freezing Assets, Requiring an Accounting, Requiring Preservation of Documents and Authorizing Expedited Discovery, and appointed a receiver for all defendants and relief defendants.
In its action, the Commission accused Jerry Eaton ("Eaton"), Kevin J. Kyes ("Kyes"), John A. Di Pietro ("Di Pietro") and Craig D. Hawkins ("Hawkins") of misappropriating approximately $5 million of Perennial Fund I LP ("Perennial Fund") investors' monies. Kyes, Di Pietro and Hawkins raised these funds from investors through false and misleading claims that investor proceeds would be invested in safe instruments, such as U.S. government securities. Further, they claimed that based upon these investments, Perennial Fund would enter into secondary trading efforts that purportedly were designed so that investor monies would never be at risk. In reality, Kyes, Di Pietro and Hawkins misappropriated approximately $500,000 of investor monies to, among other things, make "Ponzi" payments to investors, and transferred the remaining $4.5 million to Eaton. In turn, Eaton misappropriated these monies, in part to purchase two luxury homes. In addition, Kyes, Di Pietro and Hawkins falsely claimed to investors that Perennial Fund had been purchased at an enormous profit and sent investors a false statement setting forth fictitious profits. They then lulled investors with various false explanations for the delay in distributing these profits. At the same time that they touted Perennial's purported success, Kyes, Di Pietro and Hawkins began to offer Sentinel Fund I LP ("Sentinel Fund"), a new, but very similar, investment.
In its action the Commission sued the following defendants:
The Commission's complaint charged Kyes, Di Pietro, Hawkins, Eaton, Perennial Fund, Perennial Investments, Sentinel Fund and Sentinel Investments with violating the antifraud provisions found in Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Sections 5(a) and 5(c) of the Securities Act of 1933. Additionally, the complaint charged that Perennial Investments LLC, aided and abetted by Kyes, Di Pietro and Hawkins, violated the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and that Perennial Fund and Sentinel Fund violated the registration provisions of Section 7(a) of the Investment Company Act of 1940. The complaint sought preliminary and permanent injunctions, an asset freeze, accounting, disgorgement with prejudgment interest and civil penalties. The complaint also sought an order prohibiting the movement, alteration and destruction of books and records and an order expediting discovery.
The Commission also charged, as relief defendants, Harold L. Killgore, Alex Volodarsky, Carl T. Johnson, James A. Person, Snappy Enterprises, Inc. and Malachi Financial Corporation, who collectively received at least $2.9 million of investor monies.
The Commission acknowledges the assistance of the California Department of Corporations in this matter.