LITIGATION RELEASE NO. 17913 / January 3, 2003
UNITED STATES v. FRANK L. PEITZ, DANIEL B. BENSON, PETER A. LOUTOS, SR., ROBERT D. PALADINO, RANDALL W. LAW, and MONICA M. ILES. Criminal Action No. 01CR0852 (N.D. Ill., Eastern Division)
On December 11, 2002, a Federal Court jury in the U.S. District Court for the Northern District of Illinois (Eastern Division) convicted five defendants on charges arising from a fraudulent prime bank trading scheme. Frank L. Peitz ("Peitz"), Daniel B. Benson ("Benson"), Randall W. Law ("Law"), Monica Iles ("Iles"), and Robert D. Paladino ("Paladino") were each convicted of multiple felonies involving the offer and sale of the fraudulent program through Lennox Investment Group, Ltd. ("Lennox"), an entity owned and controlled by Law, and the subsequent misappropriation of approximately more than $11 million collected from investors.
Peitz, Benson, Law, Iles and Paladino were each convicted of eight counts of wire fraud. Peitz, Benson and Paladino were also convicted of six counts of money laundering and one count of money laundering conspiracy. The same three defendants were each acquitted of one additional money laundering count. A sixth defendant, Peter A. Loutos, an attorney, pleaded guilty before trial to a superceding count of fraud in connection with a bank application. The evidence presented at trial showed that between 1996 and 1998, the five defendants, acting through Lennox and other entities they controlled, sought and obtained funds from individuals by purportedly selling investments in the nonexistent international trading of bank financial instruments. Through Lennox alone, the evidence demonstrated, defendants collected more than $11 million. In the course of the scheme, the defendants made material misstatements and omissions, including the following: (1) investor funds would be used in the international trading of bank instruments; (2) investor funds would be held in an escrow account or that collateral of equal value would insure the safety of investor funds; (3) investor principal was guaranteed; (4) investors would receive returns of 122 per cent per week for forty weeks during the one year term of their investment; and (5) the trading program was regulated and approved by governmental entities such as the Federal Reserve and the International Monetary Fund. In fact, the evidence established, the purported trading program did not exist and investor funds were not used to trade banking instruments. Rather, the defendants systematically disbursed investor funds for the benefit of themselves and their designees.
The charges brought in the criminal proceeding were based on the same conduct alleged in a civil action brought by the Commission's Fort Worth District Office in June 1998. [SEC v. Lennox Investment Group, Ltd., et al., USDC/ND/TX [Fort Worth Division], Civil Action No. 498-CV-536-Y].
In the criminal proceeding, the Commission staff assisted the United States Attorneys' Office by providing documents and sworn testimony obtained during the Commission's investigation and litigation. An attorney with the Commission also testified at the criminal trial.
For more information on prime bank fraud, investors are advised to access the Commission's "Prime Bank" Investor Alert that provides tips on how to avoid being a victim of these scams. The investor alert can be found on the Commission's web site, at www.sec.gov/pbank/pbnkhome.htm.