U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18462 / November 17, 2003
SECURITIES AND EXCHANGE COMMISSION v. LYTLE E. FOGLESONG, THOMAS GREGORY COOK, JAMES H. MALBAFF, and MALBAFF & COOK, No. 5:01CV00104 (Wilson, C.J.) (U.S.D.C., W.D. Va.)
SEC SETTLES FRAUD CHARGES AGAINST PROMOTERS OF PRIME BANK SECURITIES FRAUDS, AND ISSUES BAR ORDERS AGAINST THEM
On October 28, 2003, the United States District Court for the Western District of Virginia entered final judgments against all four defendants in the Commission's "prime bank" case arising from the promotion of certain fraudulent high-yield investment programs to investors in Virginia and elsewhere. The defendants are Lytle E. Foglesong, Thomas Gregory Cook, James H. Malbaff, and a partnership called Malbaff & Cook. Without admitting or denying the allegations of the Commission's complaint, the defendants consented to the entry of final judgments that permanently enjoin them from violating the antifraud and broker-dealer registration provisions of the federal securities laws and order them to disgorge their ill-gotten gains. Certain portions of the disgorgement obligations were waived, and no civil penalties were imposed against the defendants, based on their financial conditions. In related proceedings, the Commission issued administrative orders on November 17, 2003 that bar Fogelsong, Malbaff, and Cook from associating with any broker or dealer in the future.
In its complaint in federal court, which it filed on December 19, 2001, the Commission alleged that the defendants fraudulently obtained over $1.1 million by promoting several "high yield" investment programs to over thirty investors, the majority of whom resided in Virginia. According to the complaint, the defendants functioned primarily as finders and brokers, delivering most of the investment proceeds to the operators of the purported programs. The complaint further charged that, during the course of soliciting investors, the defendants made numerous material misrepresentations concerning, among other things, the views of the Commission, the Federal Reserve and other agencies on the investment programs, their own due diligence with respect to the legitimacy of the programs, the programs' safety, and the use of investors' funds. Finally, the complaint alleged that the defendants each participated in an extensive lulling campaign once they knew that the investors' funds had been misappropriated. (See Securities and Exchange Commission v. Lytle E. Foglesong, Thomas Gregory Cook, James H. Malbaff, and Malbaff & Cook, Civil Action No. 5:01CV00104 (W.D. Va.); Lit. Rel. No. 17281/December 19, 2001.)
The court's final judgments permanently enjoin each of the defendants from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 10b-5. In addition, Malbaff, Cook, and Malbaff & Cook were jointly and severally ordered to disgorge $825,000 in ill-gotten gains plus prejudgment interest; however, due to their financial condition, no civil penalty was imposed against them, and their disgorgement obligation was waived to the extent it exceeds their outstanding and renewed obligation to make payments totaling $377,000 (plus post-judgment interest) under a Settlement Order entered against them by the Virginia State Corporation Commission's Division of Securities and Retail Franchising. Fogelsong was ordered to disgorge $1,125,000 in ill-gotten gains plus prejudgment interest, but that obligation was waived, and no civil penalty was imposed, based on his financial condition.
The above-described final judgments and bar orders conclude this litigation. Related federal criminal proceedings remain pending as to Foglesong, Cook, and Malbaff in the United States District Court for the Western District of Virginia.
[For related cases, see also Lit. Rel. Nos. 17908 / Dec. 20, 2002 and 17909 / Dec. 23, 2002; for further information regarding "prime bank" fraud in general, see the SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml].