Securities and Exchange Commission
Litigation Release No. 17827 / November 5, 2002
Commission Files Emergency Action Against Abraham L. Kennard and Two Corporations in Ongoing Affinity Fraud
Securities and Exchange Commission v. Network International Investment Corporation, et al. Civil Action No. 02-8294 (E.D. Pa.)
The Securities and Exchange Commission ("Commission") announced today that it filed an emergency civil action in the United States District Court for the Eastern District of Pennsylvania, alleging an ongoing nationwide affinity fraud, primarily targeting African-American churches, conducted by defendant Abraham L. Kennard, of Wildwood, Georgia, and defendants Network International Investment Corporation ("NIIC") and Church Kingdom Investments, Ltd. ("Church Kingdom"), two companies controlled by him. The Complaint also names as relief defendants R. Scott Cunningham, of Dalton, Georgia, an attorney, his law firm R. Scott Cunningham, P.C., Carl Grigsby, NIIC's Director of Security Services, and Grigsby & Grigsby, LLC, a company owned or controlled by him. The Honorable John P. Fullam, upon motion of the Commission, entered emergency relief, including a temporary restraining order and asset freezes, against the defendants and relief defendants, and scheduled a hearing on the Commission's motion for a preliminary injunction for November 18, 2002.
The Commission's complaint alleges that, from at least January 2001 through the present, NIIC and Kennard have engaged in a deliberate scheme to defraud investors by making false and misleading statements in connection with the unregistered offer and sale of securities, in the form of investment contracts, relating to NIIC's so-called "Church Funding Project." NIIC, acting through Kennard, has raised at least $3 million from over 1000 investing churches located throughout the United States. At least 38 of the defrauded churches are located in the Eastern District of Pennsylvania. Church Kingdom is a vehicle for Kennard's fraud and a means through which he has conducted his fraudulent activities.
The complaint further alleges that, through various promotional means -- including NIIC's website, Kennard's presentations at group meetings and religious conferences, telephone solicitations, mailings and a commissioned sales force -- Kennard solicits churches to become members of NIIC by falsely promising huge financial returns. Specifically, for each investment of $3,000, Kennard promises to pay a return of $500,000. Kennard tells investors that NIIC will fund the promised returns from a pool of money that NIIC receives for this purpose from four sources: profit-making corporations; federal government grants; other Christian institutions; and profits from a series of world-wide Christian-based resorts to be built and run by NIIC's sister corporation, Church Kingdom. In fact, NIIC does not have any commitments from profit-making corporations or other institutions to fund this project, and Church Kingdom has built no resorts. As a result of this offering, NIIC has outstanding commitments to investors of at least $500 million.
The complaint also alleges that Kennard deposited investor funds into the escrow account of R. Scott Cunningham. According to Cunningham, although earlier this year the escrow account contained as much as $2 million of investor funds, at present only $160,000 of those funds remain in his account. In addition, some funds raised by Kennard were wired directly from an investor to Grigsby & Grigsby, LLC.
The complaint charges the defendants with violations 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; and NIIC and Kennard with violations of Sections 5(a) and 5(c) of the Securities Act. The complaint seeks permanent injunctive relief, disgorgement, prejudgment interest and the imposition of civil penalties. The staff moved separately for emergency relief against NIIC, Kennard and Church Kingdom, including a temporary restraining order, a preliminary injunction, an asset freeze, accounting, expedited discovery, and an order preventing the destruction of documents. Finally, the Commission seeks asset freezes, an accounting and disgorgement from the relief defendants.