SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17218 / November 2, 2001
Securities and Exchange Commission v. Don D. Lukens, individually and doing business as Community Group Funding and Global Sports & Entertainment; J.C., Inc.; and James Carter Allison, individually and doing business as Select Assets, no. CV 01-09410 SVW (AJWx) (C.D. Cal.)
SEC CHARGES CALIFORNIA MAN WITH DEFRAUDING MORE THAN 100 INVESTORS, INCLUDING PROFESSIONAL ATHLETES AND RETIREES, IN MULTI-YEAR SCHEME; SEC ALSO ACTS TO PREVENT BANKRUPTCY DISCHARGE
The Securities and Exchange Commission ("Commission") today announced that on November 1, 2001 it filed a civil injunctive action in federal district court in Los Angeles, California accusing Don D. Lukens, an unregistered investment adviser and broker-dealer operating in Oxnard, California, of defrauding at least 100 investors of millions of dollars in a series of schemes throughout the late 1990s. In a separate action on November 1, 2001, the Commission also commenced a related adversary proceeding against Lukens in United States Bankruptcy Court in Santa Barbara, California, where Lukens is a debtor, seeking to prevent the discharge of the substantial portion of Lukens' indebtedness incurred through securities fraud.
Named in the district court complaint are:
- Donald D. Lukens, 50, of Camarillo, California. Lukens conducted business through two unincorporated proprietorships that he owned: Community Group Funding, a mortgage broker, and Global Sports and Entertainment, an unregistered investment advisory firm that catered to professional athletes and other wealthy individuals. Lukens operated both firms out of posh offices in Oxnard, California.
- James Carter Allison, 50, of Roscoe, Texas, who worked for CGF and Global in 1998 and 1999.
- J.C. Inc., a Nevada shell corporation established in 1998 and secretly controlled by Lukens.
The Fraudulent Conduct
According to the district court complaint:
- Lukens fraudulently induced more than 100 investors to entrust him with millions of dollars to invest in a series of unsuitable, mortgage-backed securities laden with significant undisclosed risks. In soliciting these funds, Lukens routinely and falsely described the investments as "safe" and "secure," promised high returns, provided baseless personal guarantees, made other materially false or misleading statements -- including overstating the value of collateral underlying the mortgage-backed securities.
- In particular, Lukens defrauded investors in four mortgage-backed securities offerings: (1) Monterey Bay Shores, a proposed hotel, condominium and residential development on oceanfront property near Monterey, California; (2) Tahoe Mariner, a planned development of a former casino site into residential timeshares on lakefront property in Lake Tahoe, Nevada; (3) Palm Colony Villas, a series of individual condominiums built in Camarillo, California; and (4) several projects in Murietta, California proposed by developers Kevin and Regina Walsh.
- The mortgage-backed securities that Lukens peddled shared a common characteristic: they secretly enriched Lukens through his receipt of undisclosed commissions or fees.
- Lukens also misappropriated or diverted millions of dollars that clients and customers entrusted to him for investment in these mortgage-backed securities.
- In another series of transactions, Lukens induced investors to entrust him with millions of additional dollars by falsely representing that he would invest those funds in a number of other purported securities, including stocks, "venture capital," "real estate" projects and limited partnerships. Lukens did not invest these funds, but instead misappropriated or diverted the money for personal and business expenses, including making payments toward his substantial personal debt and paying earlier investors in Ponzi-like fashion.
Of the more than 100 victims thus far identified, the complaint alleges that Lukens misappropriated or diverted between $12.5 and $18 million, as follows:
- at least $2 million in undisclosed third-party commissions that Lukens received by investing funds in mortgage-backed real estate projects;
- at least $3 million that clients and customers entrusted to him to invest in mortgage-backed real estate projects, including at least $1.4 million that Lukens invested but failed to return at the payoff date, and at least $1.6 million that he never invested; and
- at least $7.5 million, and possibly as much as $13 million, that Lukens falsely claimed to have invested in a variety of other purported securities.
The complaint alleges, however, that the total number of Lukens' victims may well exceed 200 investors and that the total amount of investor loss possibly exceeds $25 million.
Central to Lukens' fraudulent schemes was the vulnerability of the customers and clients he solicited and defrauded. Lukens' victims included his pastor, fellow parishioners at his church, his children's former teacher, retirees and the disabled. These victims placed complete reliance on Lukens and entrusted him with funds they needed for retirement or for daily necessities, funds they could not afford to lose. Operating through Global Sports & Entertainment, Lukens also attracted additional investment capital from various current and former professional athletes and other high net worth individuals, many of whom were financially unsophisticated, but nevertheless wealthy.
Allison, at Lukens' direction, knowingly conducted transactions through two shell entities, J.C. Inc. and Select Assets, aiding Lukens' misappropriation and diversion of client funds.
Violations of the Federal Securities Laws
The Commission's district court complaint charges that Lukens acted as an unregistered securities broker-dealer in violation of Section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and that Lukens defrauded more than one hundred advisory clients and brokerage customers in violation of Section 17(a) of the Securities Act of 1933; Sections 10(b) and 15(c) of the Exchange Act; Exchange Act Rules 10b-5 and 15c1-2; and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
The complaint also charges, under Section 20(e) of the Exchange Act, that James Carter Allison and J.C. Inc. knowingly provided substantial assistance to Lukens in furtherance of his fraud, thus aiding and abetting Lukens' violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.