U.S. SECURITIES & EXCHANGE COMMISSION
Litigation Release No. 17966 / February 4 , 2003
Accounting and Auditing Enforcement Release No. 1711 / February 4, 2003
U.S. Securities and Exchange Commission v. Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson, U.S. District Court for the Southern District of Indiana, Cause No. IP 02-1118 C H/S (S.D. Indiana 2002).
The U.S. Securities and Exchange Commission (Commission) announced that on January 31, 2003, the Honorable Judge David F. Hamilton of the United States District Court for the Southern District of Indiana entered an Order (A) Approving Plan for Noteholder Repayment by Church Extension of the Church of God, Inc. and United Management Services, Inc. (entity defendants) and (B) Granting Related Relief. The Commission commenced its enforcement case on July 22, 2002, alleging, among other things, that the defendants fraudulently raised approximately $85 million from the sale of investment notes to thousands of investors nationwide.
On July 31, 2002, Judge Hamilton entered a Final Judgment and Order of Permanent Injunction and Other Equitable Relief (Final Judgment) against the entity defendants, enjoining them from future violations of the antifraud provisions of the federal securities laws and ordering disgorgement of approximately $81 million. The entity defendants consented to the entry of the Final Judgment without admitting or denying the allegations of the Commission's complaint. The litigation is currently pending against the individual defendants.
The Plan for Noteholder Repayment provides for the continuation of the entity defendants so that they may orderly liquidate their assets over a five-year period in order to pay disgorgement to investors and other creditors. During this period, the Commission and Jeff J. Marwil, the court-appointed conservator in this matter, will aggressively monitor the liquidation process. In addition, a new company (Newco) will be formed and 10% of any funds or proceeds that Newco receives shall be transferred to the entity defendants for distribution to investors and other creditors.
Other key provisions of the Plan for Noteholder Repayment include:
- Newco will execute a $10 million note payable to the entity defendants, which will mature at the end of the five-year period and will be paid to investors and other creditors;
- Judge Hamilton empowered Mr. Marwil to bring cases against third parties for the benefit of investors and other creditors; and
- A stay against enforcement actions by all of the entity defendants' creditors.
The Plan for Noteholder Repayment also provides for interim principal payments to investors and other creditors. The first distribution shall be made by no later than February 28, 2003, and the distributions shall continue to be made on a quarterly basis, pending the availability of sufficient funds.
For further information, please see Litigation Release Numbers 17656 (August 5, 2002) [final judgment entered against entity defendants] and 17623 (July 22, 2002) [complaint filed].
To receive a copy of the Plan for Noteholder Repayment, please send your request to email@example.com