U.S. Securities and Exchange Commission
Litigation Release No. 18375 / September 29, 2003
Securities and Exchange Commission v. Wellness Technologies, Inc. and Jesse Dean Bogdonoff, United States District Court for the Northern District of California, Civil Action, No. C-03-4384-MJJ
SEC Sues Investment Adviser And Its Principal For Misrepresentations That Caused Tongan Government To Lose Over $24.5 Million
The Securities and Exchange Commission ("SEC") today announced the filing of a civil injunctive action in the federal district court for the Northern District of California against Wellness Technologies, Inc. ("Wellness"), a former investment adviser and its sole principal, Jesse Dean Bogdonoff ("Bogdonoff") for defrauding the Tonga Trust Fund ("Trust"), a trust fund established by the government of Tonga. The SEC's complaint alleges that from June 1999 to November 2001, Wellness and Bogdonoff fraudulently induced the Trust to invest $24.5 million in three highly speculative and unsuitable investments. As a result of the fraud, the Trust has lost substantially all of its investment. The adviser received at least $2 million in commissions from the companies whose securities he recommended, as well as $540,000 in advisory fees from the Trust.
According to the complaint, Bogdonoff recommended that the Trust invest $20 million with a newly established company that sold investments in viatical contracts, which are agreements to purchase the benefits of life insurance policies insuring terminally ill or very elderly persons. Bogdonoff falsely told the trustees that this investment carried "no market risk," despite the risk that the Trust could lose all of its investment held by the thinly capitalized company. The complaint also alleged that Bogdonoff recommended that the Trust invest $4 million dollars and $500,000, respectively, in two private companies that Bogdonoff knew were struggling to stay solvent. The complaint further alleges that Bogdonoff falsely reported to the trustees on several occasions that all three investments were increasing in value, when in fact, the investments were failing or stagnant.
The SEC's complaint alleged that by November 2001, the investments collapsed or defaulted without returning any of the Trust's investment funds.
The complaint charges Wellness with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") and Bogdonoff with aiding and abetting those violations; it also charges Wellness and Bogdonoff with violating Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks a court order directing Wellness and Bogdonoff to disgorge all commissions and fees they received relating to the Trust's investments, imposing civil monetary penalties and enjoining them from future violations of the securities laws.