SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17492 / April 26, 2002
SEC v. Kenneth R. Payne, et al., Civil Action No. IP00-1265C (S.D. IN)(filed August 10, 2000)
The U.S. Securities and Exchange Commission (SEC) announced today that on April 12, the Honorable John D. Tinder, United States District Judge for the Southern District of Indiana, sentenced Kenneth R. Payne (Payne), a resident of Indianapolis, Indiana, to seventeen years and seven months in prison, and ordered him to pay restitution of more than $27 million for orchestrating a $29 million Ponzi scheme. In January, Payne, former president of Heartland Financial Services, Inc. (Heartland), entered a guilty plea to five counts of mail fraud and one count of money laundering based on his fraudulent conduct in connection with the Ponzi scheme. The criminal case was prosecuted by the U.S. Attorney's Office for the Southern District of Indiana.
Previously, on August 10, 2000, Judge Tinder, who also presides over a lawsuit filed by the SEC captioned SEC v. Payne, et al., IP00-1265 C, entered a temporary restraining order in that case against Payne, Daniel G. Danker (Danker), Heartland, JMS Investment Group, LLC (JMS), Johann M. Smith (Smith) and Constance Brooks-Kiefer (Brooks-Kiefer) for their involvement in the Ponzi scheme. The SEC's complaint in the civil lawsuit alleged that from at least January 1998 to the present, the defendants defrauded investors, many of whom were elderly, through the offer and sale of three bogus investment opportunities: (1) initial public offerings of financial institutions and technology companies represented by units of JMS; (2) interests in an offshore bank located in Belize; and (3) units of Heartland as well as stocks, money markets and mutual funds through Heartland. Rather than use investor funds for legitimate securities transactions, the SEC alleged that the defendants commingled investors' funds from all three schemes in a common bank account controlled by Smith and Brooks-Kiefer and used most of the $29 million raised from investors to repay investors in the Ponzi scheme and for other non-investment related purposes [See SEC v. Kenneth R. Payne, et al., Litigation Release No. 16650].
Additionally, on August 21, 2000, Judge Tinder entered orders of preliminary injunction against Payne and Heartland [See SEC v. Kenneth R. Payne, et al., Litigation Release No. 17049]. However, on or about September 6, 2000, Payne fled the jurisdiction of the United States and was eventually apprehended and arrested by federal marshals in Cancun, Mexico on September 28, 2000. Since his arrest, Payne has been incarcerated in Indianapolis. Further, on June 5, 2001, the Clerk of Court for the Southern District of Indiana entered defaults against Payne and Heartland based on their failure to plead or otherwise defend the SEC's action against them.