U.S. Securities and Exchange Commission
Litigation Release No. 18192 / June 16, 2003
Securities and Exchange Commission v. American Financial Group of Aventura, Inc., David H. Siegel and Edward M. Chism, Sr., Case No. 02-22198-CIV-MARTINEZ/DUBE, filed June 16, 2003).
SEC Files Motion To Amend Complaint To Add Edward M. Chism, Sr. As Additional Defendant In Action Against American Financial Group Of Aventura, Inc. And David H. Siegel, In Connection With An $87 Million Securities Fraud Scheme
The Securities and Exchange Commission ("SEC" or "the Commission") announced that on June 16, 2003, it filed a motion to amend its complaint against American Financial Group of Aventura, Inc. ("AFG") and David H. Siegel ("Siegel"), to add Edward M. Chism, Sr. ("Chism") - - AFG's former president and chief executive officer - - as an additional defendant. Previously, on July 24, 2002, the Commission filed an emergency federal civil action against AFG, a Miami-based Florida corporation, and Siegel, its vice president and director of investments, and relief defendant American Wealth Management of Aventura, Inc., a Florida corporation, in connection with the fraudulent offer and sale of investment contracts. AFG was in the business of pooling investor money and then using those monies to make secured loans to individuals who pledged restricted stock as collateral. On July 25, 2002, the Honorable Donald L. Graham, United States District Judge for the Southern District of Florida entered, among other things, an emergency order to temporarily freeze the assets of the defendants.
In its amended complaint, the SEC restated, among other things, its allegations that: (1) AFG raised approximately $87 million from investors by selling them unregistered investment contracts consisting of fractionalized interests in restricted stock loans through AFG's so-called "Restricted Stock Loan Program"; (2) AFG enticed investors with promises of high returns with low risk because investments were purportedly over-collateralized with restricted stock; (3) Siegel, a recidivist securities laws violator, misappropriated investor monies and issued false statements to investors falsely showing high returns when, in fact, the investments were losing value because Siegel was misappropriating the money raised by AFG; (4) AFG misled investors by failing to disclose in its offering materials and website that Siegel had a long history of securities laws violations, including an injunction entered against him in 1987 for participating in a stock manipulation scheme; and (5) the defendants violated the antifraud provisions of the federal securities laws.
In adding Chism as a defendant, the amended complaint alleges that Chism and Siegel, as control persons of AFG, are liable for AFG's fraud. Further, the amended complaint alleges that Chism approved of AFG's offering materials and website, which boasted of the professionalism and experience of AFG's principals but omitted to disclose: (1) Siegel's extensive disciplinary background; (2) Chism's background involving a 1999 order issued by a governmental agency in Panama, finding him liable for the mismanagement of public funds; and (3) Chism's filing of false and fraudulent tax returns concerning money funneled from AFG. Furthermore, the amended complaint alleges that the defendants, including Chism, also violated the registration provisions of the federal securities laws. Finally, the amended complaint seeks additional relief against the defendants, in the form of an order barring Siegel and Chism from serving as officer or directors of any public company.