UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17438 /March 26, 2002
SECURITIES AND EXCHANGE COMMISSION V. RESOURCE DEVELOPMENT INTERNATIONAL, LLC, DAVID EDWARDS, JAMES EDWARDS, JADE ASSET MANAGEMENT, LTD., SOUND FINANCIAL SERVICES, INC., INTERCOASTAL GROUP, LLC, INTERCOASTAL GROUP II, LLC, KEVIN LYNDS, GERALD J. STOCK, BLACKWOLF HOLDINGS, LLC and WILLIAM WHELAN, Defendants and PACIFIC INTERNATIONAL LIMITED PARTNERSHIP, INTERNATIONAL EDUCATION RESEARCH CORPORATION, GALAXY ASSET MANAGEMENT, INC., and DAVID CLUFF, Individually and d/b/a RIVERA TRUST 410, Relief Defendants. Civil Action No. 3:02-CV-0605-H
The United States Securities and Exchange Commission ("SEC") filed a civil action in the United States District Court in Dallas, Texas to stop an alleged $98.7 million fraudulent prime bank scheme. On March 25, 2002, Judge Jerry Buchmeyer, United States District Court for the Northern District of Texas, Dallas Division, granted the Commission's Motion for Temporary Restraining Order and issued an Ex Parte Order Freezing Assets and Requiring an Accounting, Preservation of Documents, Repatriation of Assets, Surrender of Passports and Authorizing Expedited Discovery, and appointed a receiver for all defendants and relief defendants. In its action, the Commission sued the following defendants:
- Resource Development International, LLC ("RDI"), located in Tacoma, Washington, is a Nevada limited liability corporation formed in January 1999 and dissolved in August 2000.
- Jade Asset Management, Ltd. ("Jade") is incorporated in Nevis, West Indies.
- Sound Financial Services ("SFS"), located in Tacoma, Washington, is incorporated in Nevada.
- David Edwards ("D. Edwards"), West, University Place, Washington, acts as president of RDI, vice-president of defendant Sound Financial Services, Inc. and vice-president of relief defendant International Education Research Corporation ("IER"), and controls Jade and Galaxy Asset Management, Inc. ("Galaxy").
- James Edwards ("J. Edwards"), of, Tacoma, Washington, is the father of D. Edwards, and together with him owns and/or controls RDI, SFS Jade IER and Galaxy. J. Edwards formed and controls relief defendant Pacific International Limited Partnership ("PILP").
- Intercoastal Group, LLC ("Intercoastal I") is a Nevada limited liability corporation formed in 1999 by defendants Gerald Stock ("Stock") and Kevin Lynds ("Lynds").
- Intercoastal Group II, LLC ("Intercoastal II") is a Delaware and Nevada limited liability corporation formed in 2000 by Stock and Lynds.
- Blackwolf Holding, LLC ("Blackwolf"), of Manitowoc, Wisconsin, is a Nevada limited liability corporation formed in 1999 by Stock and Lynds.
- Stock, of 851 Summit St., Manitowoc, Wisconsin, was a control person of, and sold, Intercoastal I, Intercoastal II and RDI to investors.
- Lynds, of Wichita Falls, Texas, was a control person of, and sold, Intercoastal I, Intercoastal II and RDI to investors.
- William Whelan ("Whelan"), of Visalia, California, sold RDI to investors.
Specifically, the Commission charges that from January 1999 through the present, defendants' RDI scheme has raised approximately $98 million from more than 1300 investors nationwide, targeting persons seeking to invest retirement funds. In the course of marketing the RDI trading program, defendants D. Edwards, J. Edwards, Stock, Lynds and Whelan acted as unregistered broker-dealers. Defendants falsely claimed to investors, among other things, that their money would be used in Europe to trade financial instruments with "top 25" or "top 50" banks in a program sponsored by the Federal Reserve and global organizations, generating annual returns of 48 to 120 percent with complete safety of principal. In reality, the prime bank program marketed to investors does not exist and investor funds have been misappropriated for personal and unauthorized uses, including making Ponzi payments. Moreover, while RDI has ceased making payments of any kind to its investors, tens of millions of dollars collected by the defendants simply cannot be accounted for. The Commission's complaint further charges that J. Edwards and D. Edwards diverted funds to buy property and a home for their personal use, and that relief defendants PILP, IER, Galaxy and David Cluff, individually and d/b/a Rivera Bench Trust 410, have received at least $6 million, and possibly as much as $13 million, of RDI investor funds or control property derived from investor funds.
The Commission's complaint charges that RDI, the Edwards, Jade, SFS, Whelan, Stock, Lynds, Intercoastal I, Intercoastal II and Blackwolf violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also charges the Edwards, Lynds, Stock and Whelan with violations of Section 15(a) of the Exchange Act. In addition to the emergency relief set out above, the Commission seeks preliminary and permanent injunctions, disgorgement and civil penalties, and repatriation orders against all the defendants, and disgorgement and prejudgment interest against the relief defendants.
Unscrupulous promoters continue to victimize the public with Prime Bank schemes. Accordingly, investors are advised to access the Commission's "Prime Bank" Investor Alert, which provides tips on how to avoid being a victim of these scams. The investor alert can be found on the Commission's web site, at www.sec.gov/divisions/enforce/primebank.shtml.
The Commission acknowledges the assistance and cooperation of several other government agencies in this matter, including the State of Washington Department of Financial Institutions Securities Division; the Alabama Securities Commission; the State of Wisconsin Department of Financial Institutions; the District Attorney's Office of Santa Clara County, California; the Arizona Corporation Commission, Securities Division; the Arizona Attorney General's Office; and the Board of Governors of the Federal Reserve System.