UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17548 / June 10, 2002
SECURITIES AND EXCHANGE COMMISSION V. WESTSHORE AGENCY OF MICHIGAN, ET AL., CIVIL ACTION NUMBER CIV-H-00-1827 (USDC/Southern District of Texas).
The Commission announced a settlement today in a nationwide ponzi scheme in which over $13.5 million was raised from 140 mostly elderly Texas investors. Under the terms of the settlement, defendants Edward Neel Cox, Billy Wayne Sparkman, Joseph Lee Covington, Charles Frederick Johnson, Stephen T. Hoyl, Danny R. Mayfield, Randy J. Post and Benny Armond Sides, agreed to a permanent injunction against future violations of the securities laws. Previously, in a South Carolina criminal proceeding, all were ordered to disgorge commissions each received from their participation in the ponzi scheme. The Commission decided not to seek a civil penalty against Cox, Sparkman, Covington, Hoyl, Post and Sides based upon their sworn representations regarding financial status in documents submitted to the Commission. Johnson consented to pay a penalty of $10,000. The Commission decided not to seek the imposition of a civil monetary penalty against Mayfield because of his significant cooperation with the Commission and his efforts to help his clients who were victimized by the ponzi scheme.
In its civil action, the Commission alleged that defendants sold promissory notes issued by Chemical Trust, a purported business trust, as part of a nationwide ponzi scheme. The promissory notes were claimed to be secured by surety bonds issued by United States Guarantee Corporation, an Arizona based surety company. In reality, the control persons behind Chemical Trust were diverting investor funds to their own use and the surety company was being run by a convicted felon and held no assets with which to secure the promissory notes. The Commission alleged that the defendants were in a position to learn of the issuer's fraudulent scheme, but failed to conduct any meaningful due diligence before selling the securities to their insurance clients. The Commission further alleged the defendants made fraudulent statements in connection with the sale of the Chemical Trust promissory notes and acted as unregistered brokers.
The defendants consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining each from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Cox, Sparkman and Covington consented to the entry of an administrative order barring each from association with any broker or dealer while the remaining respondents consented to a twelve-month suspension from association with any broker or dealer.