U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission


LITIGATION RELEASE NO. 17527 / May 21, 2002

SECURITIES AND EXCHANGE COMMISSION V. DENNIS WATTS, INDIVIDUALLY AND D/B/A SENIOR BENEFIT PLANS AND JAMES NATHAN GRIMES, Civil Action No. 5-02CV-0109-C, United States District Court for the Northern District of Texas, Lubbock Division.


On May 21, 2002, the Securities and Exchange Commission filed a securities fraud case in the United States District Court for the Northern District of Texas, Lubbock Division, charging two licensed insurance agents with selling unregistered securities and misleading investors in connection with two different pay telephone scams. According to the complaint, between November 1999 and May 2001, the defendants raised over $5 million by fraudulently offering and selling unregistered investment contracts in Phoenix Telecom, L.L.C. and Alpha Telcom, Inc., entities previously sued by the Commission for fraud. The defendants targeted their sales efforts at their elderly insurance clients and from the sales of these investment contracts, the defendants received over $750,000 in undisclosed commissions.

In its complaint, the Commission charged the following defendants:

  • Dennis Watts, individually and d/b/a Senior Benefit Plans, of Lubbock, Texas; and

  • James Nathan Grimes, also of Lubbock, Texas.

The SEC's complaint alleges that the defendants represented, among other things, that they offered safe, secure and risk free investments in pay telephone lease programs, that they had thoroughly investigated the companies offering the lease programs and that the companies were in good financial condition. These representations were made even though defendants knew that there were no audited financials and that the unaudited financials for the companies demonstrated that the companies were in poor financial condition. Additionally, while defendants were aware that several states had issued cease and desist orders against the issurers, they failed to disclose this information to their investors. And, remarkably, defendants continued to offer and sell investment contracts in Alpha Telcom that were virtually identical to those offered by Phoenix Telecom, even though Phoenix Telecom had failed. Despite the defendants' assurances that the investments were safe and risk free, in reality, both Phoenix Telecom and Alpha Telcom were operating huge nationwide "ponzi" schemes. The Commission previously filed suit against Phoenix Telecom and Alpha Telcom, obtaining emergency injunctive relief against each issuer to halt their fraudulent securities offerings.

The Commission's complaint charged Watts and Grimes directly or indirectly sold unregistered securities, in violation of Sections 5(a) and 5(c) of the Securities Act of 1933 and committed securities fraud in violation of Section 17(a) of the Securities Act of 1933 Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the Commission's complaint charged each defendant with acting as an unregistered broker or dealer in violation of Section 15(a) of the Securities Exchange Act. In its Complaint, the Commission requested that the defendants be enjoined from future securities violations and be ordered to disgorge their illegal profits and pay civil money penalties.

The Commission would like to acknowledge the assistance of the Lubbock office of the Texas State Securities Board.

*  SEC Complaint in this matter.


Modified: 05/22/2002