UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 18295 / August 18, 2003
SECURITIES AND EXCHANGE COMMISSION V. WESTSHORE AGENCY OF MICHIGAN, ET AL., CIVIL ACTION NUMBER CIV-H-00-1827 (USDC/Southern District of Texas).
On August 8, 2003, Judge Kenneth Hoyt, United States District Judge for the Southern District of Texas, permanently enjoined James Hicks and Westshore Agency of Michigan, Inc., from future violations of the federal securities laws. Hicks and Westshore Agency consented to the order. Previously, in a South Carolina criminal proceeding, both were ordered to disgorge commissions received from their participation in a nationwide ponzi scheme that raised over $13.5 million from 140 mostly elderly Texas investors. The Commission decided not to seek a civil penalty against Westshore Agency based on its sworn financial statements and other information provided to the Commission or against Hicks because of his bankruptcy proceedings under Chapter 13 of the Bankruptcy Code.
In its civil action, the Commission alleged that Hicks and Westshore Agency organized a group of insurance agents in Texas who sold promissory notes issued by Chemical Trust, a purported business trust, as part of a nationwide ponzi scheme. The promissory notes were claimed to be secured by surety bonds issued by United States Guarantee Corporation, an Arizona based surety company. In reality, the control persons behind Chemical Trust were diverting investor funds to their own use and the surety company was being run by a convicted felon and held no assets with which to secure the promissory notes. The Commission alleged that the defendants were in a position to learn of the issuer's fraudulent scheme, but failed to conduct any meaningful due diligence before selling the securities to their insurance clients.
The defendants consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining each from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Hicks consented to the entry of an administrative order barring him from association with any broker or dealer for a period of three years with a right to reapply.