U.S. Securities and Exchange Commission
Litigation Release No. 18143 / May 19, 2003
SEC v. Terry L. Dowdell, et al., Civil Action No. 3:01CV00116 (W.D. Va.) (Honorable James H. Michael, Jr.)
Court Enters $1.8 Million Judgment Against Recidivist Marketer Birgit Mechlenberg In Connection With Dowdell Ponzi Scheme
The Securities and Exchange Commission announced that on April 29, 2003, the Honorable Judge James H. Michael, Senior U.S. District Court Judge for the Western District of Virginia, Charlottesville Division, entered a final judgment by default against Birgit Mechlenburg, one of the marketers for a massive international Ponzi scheme orchestrated by Terry Dowdell that raised more than $70 million from investors in the U.S. and abroad. Dowdell has previously pled guilty to criminal charges of securities fraud, wire fraud and money laundering stemming from this scheme. He is scheduled to be sentenced on May 30, 2003.
The judgment against Mechlenburg requires her to pay disgorgement of $1,609,496.03, plus $123,047.78 in prejudgment interest. This amount constitutes all of the commissions that Mechlenburg received in connection with her introduction of investors to this fraudulent program The court also imposed a $120,000 civil penalty on Mechlenburg, and issued a permanent injunction prohibiting future violations of anti-fraud provisions of the federal securities laws, contained in Sections 17(a)(1), (2) and (3) of the Securities Act of 1933 (the "Securities Act")[15 U.S.C. §77q(a)(1), (2) and (3)] and Sections 10b-5 and 15(c) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§78j(b) and 780(c)] and Rules 10b-5 and 15c1-2 thereunder [17 C.F.R. §§240.10b-5 and 240.15c102]. The Court also permanently enjoined Mechlenburg from acting as an unregistered broker or dealer, pursuant to Section 15(a) of the Exchange Act [15 U.S.C. §§780(a)].
The SEC's enforcement action, which was commenced on November 19, 2001, arises out of a fictitious investment program that Dowdell operated through Vavasseur Corporation, a Bahamian company controlled by Dowdell. Investors in this program (the Vavasseur Program) were required to sign an investment contract with Vavasseur Corp., termed a "Discretionary Investment Management Agreement" (Agreement). The agreement falsely represented that investor funds would be maintained in a bank account registered as "Vavasseur Corp. for the benefit of (Client name)," and committed Vavasseur: "to use its best efforts to achieve anticipated profits. . . in an amount equal to or exceeding Four Percent (4%) of the Client's funds under management for each week in which trading occurs. [Vavasseur] shall use its best efforts basis to cause trading of Client's funds in a minimum of forty weeks during each fifty-two week Agreement term." This would result in annualized gross return of 160%.
As Dowdell now admits, there were no "trades" or "investments" made by Vavasseur, but rather investors were paid "profits" in a typical Ponzi scheme fashion from new investor funds diverted to Dowdell's AmSouth accounts. In the course of perpetrating this fraud, millions of dollars of investors funds were misappropriated by Dowdell and the marketers of the Vavasseur Program.
Mechlenburg was one of the principal marketers for the scheme, raising more than $13 million from investors in the United States and Europe. She was also the first "investor" in the program, having deposited $20,000 with Dowell in late 1996. Mechlenburg immediately began receiving checks from Dowdell each week, along with a cover letter stating that these payments constituted trading profits. By 1998, when Mechlenburg began actively marketing the program, she was able to produce to potential investors a "track record" of personal success in the program. In reality, however, Dowdell was not paying Mechlenburg any trading profits, but merely returning her $20,000 investment in small, weekly increments. In the judgment against Mechlenburg, the Court made numerous findings against her, including that she was reckless in recommending the program to investors. As the Court noted in its judgment order, this is not the first time the Mechlenburg has been sanctioned for violating the anti-fraud provisions of the federal securities laws. Only months before she commenced her association with Dowdell in late 1996, the SEC had issued an Administrative Order barring her from association with any broker or dealer. That Order stemmed from Mechlenburg's participation in a similar fraudulent trading program.
Mechlenburg is not currently residing in the United States, having fled the country shortly after Dowdell admitted to the fraud in June 2002, taking her assets with her. In a prior order, Court entered contempt findings against Mechlenburg in connection with this expatriation of assets. The SEC requests that anyone with knowledge of Mechlenburg's current whereabouts contact the Receiver appointed in this lawsuit at the website address listed below.
Additional information concerning the SEC's lawsuit against Dowdell can be found in Litigation Release No. 17242, November 19, 2001; Release No. 17454, April 2, 2002; Litigation Release No. 17553, June 10, 2002; Litigation Release No. 17780, October 10, 2002; Litigation Release No. 17881, October 10, 2002; and Litigation Release No. 17905, December 19, 2002, Litigation Release No. 17999, February 26, 2003, Litigation Release No. 18029, March 11, 2003.
Additional information on how prime bank and other banking-related investment schemes work can be found at the SEC's Prime Bank Fraud Information Center (http://www.sec.gov/divisions/enforce/primebank.shtml) in the enforcement section of the SEC's Web site, at the Receiver's website, located at www.dowdell-receivership.com.