Capital Holdings, L.L.C., et al.
Litigation Release No. 18166 / June 2, 2003
Securities and Exchange Commission v. Capital Holdings, L.L.C., et al. Civil Action No. 03-RB-0923 (CBS), United States District Court for the District of Colorado.
On May 21, 2003, the Commission filed an action in United States District Court in Denver charging numerous entities and individuals with securities fraud in connection with a Denver-based prime bank scheme, which raised over $40 million from more than 600 investors in at least 31 states. The Commission has applied to the court for emergency relief, including a temporary restraining order, an asset freeze, an accounting, an order preserving documents and an order for the repatriation of funds moved offshore.
In its complaint, the Commission alleges that Capital Holdings, LLC, Smitty's Investments, LLC ("Smitty's"), Capital Holdings Int, LLC ("CHI"), Monarch Capital Holdings LLC ("Monarch"), National Marketing Solutions, LLC ("NMS"), North West Group, LLC ("NWG") and Heritage America ("Heritage"), and their principals have defrauded investors by falsely promising that: (1) investor funds would be used as collateral to facilitate leveraged trading of financial instruments issued by major banks and governments and that investors would share in the trading profits; (2) investors would earn a fixed monthly return ranging from 2% to 15%; (3) the safety of invested principal would be guaranteed; and (4) investors' funds would be fully insured. The Commission also alleges that there is no trading program and that the defendants have regularly paid undisclosed sales commissions, Ponzi payments and personal expenses with investor funds.
In its action, the Commission named the following individuals:
Norman E. Schmidt, of Denver, who controls Capital Holdings, CHI, and Smitty's and is president and a director of Monarch;
George Beros, of Shaker Heights, Ohio, who is the CFO and a director of Monarch;
Charles F. Lewis, of Centennial, Colorado, who is a principal of Capital Holdings and frequently met with potential investors and completed and signed investor documents on behalf of Capital Holdings. In 2000, Lewis pled guilty to a Class IV felony in connection with his activities in a prime bank scheme in Arapahoe County, Colorado, and served a three year probated term;
Terry Lorenzen, of Highlands Ranch, Colorado, who is a commissioned sales representative of Capital Holdings and frequently communicated with investors;
Jeffrey D. Mitchell, of Washington state, who is a principal of NMS and NWG and received commissions for sales of the Capital Holdings trading program to investors. Mitchell is subject to a Desist and Refrain Order from the California Department of Corporations, issued September 27, 2002, for substantially assisting a fraudulent offering of unregistered securities;
John J. Schlabach, of Spokane, Washington, who is a principal of NMS and NWG and frequently met with potential Capital Holdings investors.
Michael D. Smith, of Spokane, Washington, who solicited potential investors through telephone calls and personal meetings. Smith is the CEO of NMS and a principal of NWG;
Michael Vallone, from Illinois, who is the Executive Director of Heritage;
Roy R. Chavers, of Plano, Texas, who solicited investors for the Capital Holdings trading program as a representative of Heritage;
Gary N. Herbert, of Denver, a Colorado-licensed attorney, who prepared letters provided to investors containing legal analysis of the alleged nature of the non-depleting custodial trust account and the alleged insurance protection of investor funds;
George A. Weed, of Illinois, an Illinois-licensed insurance agent, who provided certificates of insurance to investors that falsely represented that investors' funds were insured.
The Commission also named in its complaint as relief defendants the following entities and individuals: Fast Track, LLC, Cambridge Ventures, Ltd., Cambridge Enterprises, LLC, Regency Ventures, Ltd., Jannice M. McLain and Scott Schmidt (collectively, "relief defendants"). Since it is alleged that each relief defendant received investor funds, the Commission also sought to freeze assets in the control of the relief defendants.
The Commission alleges in its complaint that: Capital Holdings, CHI, Smitty's, Monarch, Schmidt and Beros violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; NMS, NWG, Heritage, Lewis, Lorenzen, Mitchell, Schlabach, Smith, Vallone and Chavers violated Sections 5(a), 5(c) and 17(a) of the Securities Act, and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder; and Herbert and Weed violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition to the emergency relief sought, the Commission seeks, as against the defendants, preliminary and permanent injunctions, disgorgement plus prejudgment interest, and civil money penalties. The Commission is also seeking disgorgement from the relief defendants.
Unscrupulous promoters continue to victimize the public with Prime Bank schemes. Accordingly, investors are advised to access the Commission's "Prime Bank" Investor Alert, which provides tips on how to avoid becoming a victim of these scams. The investor alert can be found on the Commission's web site, at www.sec.gov/divisions/enforce/primebank.shtml.
The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office and FBI in Colorado.
