On December 11, 2003, the U.S. Securities and Exchange Commission (Commission) filed a civil enforcement action in the United States District Court for the Eastern District of Michigan, against Donald F. Chamberlin and his son, David N. Chamberlin, alleging that they raised approximately $7.6 million in the fraudulent offer and sale of fictitious "prime bank" securities, in two separate programs.
The Commission's Complaint alleges that, from approximately July through August 2000, Donald Chamberlin and his now defunct investment advisory firm solicited clients and others to invest in two separate prime bank schemes. The Complaint also alleges that Donald Chamberlin made material misstatements and omitted to state material facts to investors regarding the existence and risk of prime bank securities, the rate of return on the two prime bank programs, and the use of investment proceeds. Although variations existed regarding what investors were told, the essence of the promises made to investors was the same: all were promised that their money was being invested in a guaranteed, risk-free, high-yield prime bank debenture trading program. Instead of investing funds, Donald Chamberlin used approximately $1.3 million to pay personal expenses, including, among other things, mortgage payments and country club fees. In addition, Donald Chamberlin used approximately $2.6 million in new investor funds to repay prior investors, effectively operating a Ponzi scheme. The Complaint further alleges that David Chamberlin aided and abetted the violative conduct by, among other things, setting up and acting as a signatory on domestic and offshore bank accounts and lulling investors through unfounded assurances that the programs were performing well.
Specifically, the Commission alleges that: (1) Donald Chamberlin violated Section 17(a)(1), (2) & (3) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aided and abetted his defunct advisory firm's violations of Sections 206(1) & (2) of the Investment Advisers Act of 1940; and (2) David Chamberlin aided and abetted violations of Sections 10(b) and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder and violations of Sections 206(1) & (2) of the Advisers Act.
The Commission is seeking the entry of a permanent injunction, disgorgements of any ill-gotten gains, plus prejudgment interest, and a civil penalty from each of the defendants.