UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17233 / November 15, 2001
Securities and Exchange Commission v. Highland Financial Corporation, et al.
#4-99-CV-0719-D, USDC, NDTX (Fort Worth Division)
The U.S. Securities and Exchange Commission ("Commission") announced today that Judge Sidney A. Fitzwater, United States District Judge for the Northern District of Texas, entered a Final Judgment of Permanent Injunction and Other Equitable Relief against Defendant John C. Matthews. The underlying action was originally filed on September 2, 1999. In it, Judge Fitzwater granted the Commission's request for an emergency asset freeze, the appointment of a Receiver, and other equitable relief to halt a fraudulent "prime bank" investment scheme. The Commission's Complaint charged that from April 1998 through August 1998, Kay L. Cahill, a convicted felon, Matthews and other defendants violated 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, when they raised approximately $9.5 million from investors nationwide for a purported "trading program" in foreign bank instruments promising returns of as much as 1,000%. In reality, the trading program did not exist and investor funds were used to make "Ponzi" payments, in that funds from later investors were used to pay purported profits to earlier investors. In addition, investor funds were misappropriated for certain defendants' personal use. For example, Cahill purchased an 11,000-square-foot house in Tyler, Texas, at a cost of approximately $1.2 million, and spent investor funds for moving and travel expenses, and to purchase furniture and automobiles.
As part of the final judgment against Matthews, Judge Fitzwater permanently enjoined Matthews from future violations of the antifraud provisions of the federal securities laws and ordered him to pay disgorgement of $2,745,000, representing his gains from the conduct alleged in the Commission's Complaint, and prejudgment interest of $202,216. The Commission waived payment of the disgorgement and prejudgment interest, except for funds already provided to the Receiver and the funds to be generated by the Receiver's sale of Matthews' assets, including his house and automobile, and did not seek the imposition of a civil penalty, based upon Matthews demonstrated financial inability to pay. According to the Commission's Complaint, Matthews, age 48, is a resident of El Paso, Texas. He participated in the underlying fraud through his father's insurance company, Sunland States Insurance Agency, by providing bogus insurance policies purportedly guaranteeing investments in Cahill's trading program. Matthews received substantial funds from investors as insurance premiums, but failed to obtain the promised policies.