SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17517 / May 14, 2002
SECURITIES AND EXCHANGE COMMISSION v. LEWIS J. MCCONNELL, JR., NED L. HUGGINS, AND GREGORY T. WOOD, United States District Court for the District of Columbia, Civil Action No. 02 0075 RCL
The Securities and Exchange Commission announced that on April 22, 2002, the Honorable Royce C. Lamberth of the United States District Court for the District of Columbia, entered a Final Judgment of Permanent Injunction and imposed a civil penalty of $100,000 against Lewis J. McConnell, Jr. for engaging in a fraudulent offering of unregistered "prime bank note" securities. The Final Judgment, entered by default, enjoins McConnell from violating the antifraud and registration provisions of the federal securities laws (Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder). Judge Lamberth also entered final judgments against Ned L. Huggins and Gregory T. Wood on February 11, 2002, enjoining Huggins and Wood from the same violations of the federal securities laws. Huggins and Wood consented to the entry of the final judgments without admitting or denying the allegations in the Commission's complaint.
The Commission's complaint, filed on January 16, 2002, alleged that the defendants raised over $7 million from at least 21 investors by promoting their "Secure Private Placement Program," which purportedly generated risk-free returns of 20-25% per week. In materials distributed to investors, the Secure Private Placement Program was described as a joint venture between the investor and Gold Stream Holdings, Inc., in which the investor would participate in a program of trading certain "highly rated financial instruments." However, according to the complaint, the Secure Private Placement Program was merely a ploy by McConnell to, among other things, obtain financing for Gold Stream Holdings, which was a company through which he was conducting or trying to conduct his entertainment business. The complaint further alleged that McConnell hired Huggins and Wood to distribute certain materials to the investors, and that these materials contained numerous material misrepresentations and omissions concerning, among other things, the existence of such "highly rated financial instruments," Gold Stream Holdings' ability to participate in such a trading program, and the intended use of the investors' funds. All funds obtained by the defendants as a result of their illegal scheme have been returned to investors.
This case is part of the SEC's continuing effort to combat prime bank fraud and to alert the public to the risks posed by these phony instruments. The risks of this type of fraud and warnings about how to avoid it are spelled out in the Interagency Advisory: Warning Concerning "Prime Bank" Notes, Guarantees, and Letters of Credit and Similar Financial Instruments (October 21, 1993), and other information which is available through the SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml.
For more information, see Litigation Release No. 17322 (January 16, 2002).