U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18528 / December 31, 2003
SEC v. Presidents Trust Company, LLC, Jon Patrick Pierce, and David D. Klasna Civil Action No. 8:03 CV 545 (District of Nebraska)
The Commission announced that it filed a civil injunctive case against Presidents Trust Company, LLC, a South Dakota limited liability company with a South Dakota trust company charter, based in Omaha, Nebraska. The complaint also names Jon Patrick Pierce, president of Freedom Financial Group, Inc., a holding company that controls Presidents Trust, and David D. Klasna, formerly president of Presidents Trust. Pierce and Klasna are residents of Omaha. The complaint alleges that the defendants violated the antifraud provisions of the federal securities laws.
The complaint arises out of an offering of financial instruments called "Fixed Income Trust-Secured" (the "Trusts") that Presidents Trust, through Pierce and Klasna, conducted during August and September 2003. The defendants raised approximately $14 million from at least 150 investors nationwide, claiming that the Trusts were a safe, secure investment that would pay a higher rate of return than traditional conservative investments, such as bank certificates of deposits. The offering was terminated when regulators from the South Dakota Division of Securities entered a cease-and-desist order against the offering.
According to the complaint, the Trusts were not a safe or secure investment, but were essentially unsecured promissory notes issued by Presidents Trust. The defendants allegedly misled investors by calling the instruments Trusts, when in fact Presidents Trust did not follow the fiduciary duties required for trustees. Some of the proceeds were reinvested in Presidents Trust itself, and while the defendants told investors that they could reinvest proceeds in Presidents Trust, they did not disclose financial statements or other information about the financial condition of Presidents Trust. In fact, Presidents Trust was strapped for cash at the time of the offering, and after the offering ceased, Presidents Trust submitted documents to the South Dakota Division of Banking showing that it was insolvent.
Concurrently with the filing of the Commission's complaint, Presidents Trust and Pierce, without admitting or denying liability, consented to entry of permanent injunctions prohibiting future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Presidents Trust also consented to an asset freeze and to the appointment of a receiver with respect to the proceeds of the Trusts offering. Litigation against Klasna and with respect to the Commission's claims of disgorgement and penalties against Pierce is continuing.
The Commission acknowledges the assistance of the South Dakota Divisions of Securities and Banking and the Nebraska Department of Banking and Finance in the investigation of this matter.
The Commission previously filed administrative proceedings against Pierce, Freedom Financial Group, and others, including a broker-dealer controlled by Pierce, Freedom Financial, Inc., that offered and sold the Trusts that are the subject of this case. The administrative proceedings, In re Freedom Financial, Inc., are pending. For more information on that matter, see Exchange Act Release No. 48446 (Sept. 4, 2003).