Securities and Exchange Commission
Litigation Release No. 18450 / November 10, 2003
Securities and Exchange Commission v. Patrick Ballinger, Dennis R. Weaver, Kosta S. Kovachev, Lee E. Larscheid, Benny G. Morris, Darin W. Roberts, Linda M. Sears, Todd F. Walker, Branson City Limits, Inc., Resort Hotels, Inc., Universal Financial Leasing, Inc., and Ozark Ticket and Travel, Inc., Civil Action No. 1:03 CV-1659 LJN-WTL (S.D. Ind.) (November 10, 2003)
The Securities and Exchange Commission ("Commission") today announced that, on November 10, 2003, it filed an emergency injunctive action in federal district court against eight individuals and the four businesses they operate to halt ongoing Ponzi schemes that have raised at least $28 million from at least 600 investors in 30 states.
The Commission's Complaint alleged that, from September 2000 to the present, Missouri-based Branson City Limits, Inc. and Nevada-based Resort Hotels, Inc. through defendants Patrick L. Ballinger ("Ballinger"), 55, Dennis R. Weaver ("Weaver"), 54, of Jackson, Tennessee, Kosta S. Kovachev ("Kovachev"), 51, of Lake Worth, Florida, Lee E. Larscheid ("Larscheid"), 54, of Branson, Missouri, Benny G. Morris ("Morris"), 46, of Palm Harbor, Florida, Darin W. Roberts ("Roberts"), 29, of Branson, Missouri, Linda M. Sears ("Sears"), 50, of Seminole, Florida, Todd R. Walker ("Walker"), 44, of Tampa, Florida, Missouri-based Ozark Ticket and Travel, Inc. ("Ozark Ticket") and Nevada-based Universal Financial Leasing, Inc. ("Universal Leasing") (collectively, the "Defendants") offered and sold securities nominally structured as hotel timeshare rental interests ("units").
The Commission's Complaint also alleged that Branson City and Resort Hotels' main principals, Ballinger and Weaver, prepared fraudulent promotional materials. With the assistance of Kovachev, Roberts, Sears, and Walker, who are all Branson City or Resort Hotels principals or agents, Ballinger and Weaver distributed these fraudulent promotional materials to sales agents and otherwise promoted Branson City and Resort Hotels to an extensive sales network. This sales network was recruited and trained primarily by Morris, through Morris' company, Universal Leasing, both of whom acted as unregistered broker-dealers. Among other things, Morris and Universal Leasing distributed these fraudulent offering materials to the sales network for use in the solicitation of investors. Morris, at times through Universal Leasing, was paid a commission on every sale, and Roberts was paid a commission on sales by sales agents he recruited. Morris (at times, through Universal Leasing) and Sears processed new investor documentation, and handled new investors' funds. From at least September 2000 to the present, through this sales network, Branson City and Resort Hotels have collectively raised at least $28 million from at least 600 investors in 30 states.
In the process, Branson City and Resort Hotels, through the other Defendants and the sales network, misrepresented and omitted to state material facts in offering materials distributed to the sales network, which the sales force passed along orally and in writing to investors. The Defendants repeatedly confirmed these misstatements and omissions, including, among other things, that: (1) the proceeds of their offerings would be used to purchase and refurbish resort properties; and (2) investor returns would be derived from subleasing of the investors' timeshare units by third party subleasing agents. However, from at least September 2001 to at least August 2003, investors' "returns" were, in fact, generated with new investors' money, and transferred to existing investors primarily by Ozark Ticket, a subleasing agent to which Branson City and Resort Hotels, through their principals and agents, including the sales network, steered most investors. Ozark Ticket and its owner, Larscheid, have actively assisted the other Defendants to defraud investors. Specifically, from at least July 2001 to at least July 2003, Ozark Ticket sent investors sample subleasing agreements that included monthly income payment schedules to lead investors to believe that they would receive annualized returns of at least 11% derived from Ozark Ticket's subleasing of their units. In fact, there is no meaningful subleasing activity. Instead, since at least September 2001, Branson City and Resort Hotels have transferred new investors' money to existing investors (via Ozark Ticket) to mislead them into believing their investments were profitable.
The Commission's Complaint also alleged that there is a significant risk that investor assets in the accounts of the Defendants may be dissipated. Specifically, the Defendants have used and are using investor funds for their own purposes, and using the same bank account where investor funds are deposited to pay themselves (including their business and personal expenses) and others. In addition, in early October 2003, Ozark Ticket informed Branson City and Resort Hotels' investors whose units it claims to be "servicing," that it was suspending income payments to them because the "program" is "in jeopardy due to the SEC's investigation." Furthermore, Ballinger, Larscheid, and Sears are convicted felons, and Weaver has a disciplinary history. Morris and Kovachev have also refused to answer the staff's questions based on their Fifth Amendment rights against self-incrimination, including questions about their roles in the schemes, and their use and disposition of investor assets.
The Commission's Complaint seeks: (1) a temporary restraining order, preliminary and permanent injunctive relief, and disgorgement, plus prejudgment interest, against Branson City and Resort Hotels, based on their violations of 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 promulgated thereunder; (2) a temporary restraining order, preliminary and permanent injunctive relief, disgorgement plus prejudgment interest, and a civil penalty against Ballinger, Kovachev, Larscheid, Ozark Ticket, Sears, Walker, Weaver, based on their violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder; (3) a temporary restraining order, preliminary and permanent injunctive relief, disgorgement, plus prejudgment interest, plus a civil penalty against Morris, Roberts, and Universal Leasing based on their violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, and Sections 10(b) and 15(a) of the Exchange, and Rule 10b-5 promulgated thereunder; and (4) ancillary relief against all of the defendants, including: expedited discovery, an accounting, asset freezes, an order prohibiting the destruction, mutilation, concealment, alteration or disposition of books and records, and, if necessary, the appointment of a receiver.