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U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

LITIGATION RELEASE NO. 18761 / June 24, 2004


SEC v. FairPax.com, FairPax, Inc. and John Does 1-5 (United States District Court for the District of New Hampshire, Civil Action No. 04-228-JD ).

The Commission announced today that on June 21, 2004, it obtained a temporary restraining order and asset freeze to halt fraudulent activity by a website, FairPax.com, that impersonated a New Hampshire mutual fund complex and promised investors returns of 657% per year. The Honorable Joseph A. DiClerico, Jr., United States District Judge for the District of New Hampshire, granted the temporary restraining order and asset freeze upon the Commission's ex parte request.

According to the Commission's complaint, the fraudulent FairPax.com, FairPax, Inc., and the unidentified individuals operating the website referred to as John Does 1-5 ("FairPax") misappropriated descriptions of the purported mutual funds offered from a registered New Hampshire-based mutual fund, Pax World Funds ("Pax World"). The complaint alleges that FairPax's descriptions of its mutual fund are taken verbatim and without authorization from the description of the high yield mutual fund offered for sale by Pax World on its website. FairPax also falsely identified Laurence A. Shadek as its chairman and Thomas W. Grant as its president. In fact, Laurence A. Shadek and Thomas W. Grant are the Chairman and President, respectively, of Pax World and are not, nor have they ever been, affiliated with FairPax. The Commission's complaint further alleges that the purported socially responsible high yield mutual fund offered on the FairPax.com website is fraudulent and has not been registered with the Commission, as required. Finally, the Commission's complaint alleges that the defendants promoted their fraudulent scheme with promises of a 657% annual return.

The Commission alleged in its complaint that FairPax violated anti-fraud provisions of the federal securities laws, specifically Sections 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also alleged that FairPax violated the registration provisions of the securities laws, namely Sections 5(a) and 5(c) of the Securities Act of 1933. It seeks an order permanently enjoining the defendants from violating these provisions, and requiring that the defendants disgorge funds received from investors and pay a civil monetary penalty.

On June 21, 2004, the day it filed its complaint, the Commission obtained entry of an order temporarily restraining FairPax from directly or indirectly continuing to violate the federal securities laws, freezing assets, and granting other emergency relief. The court has scheduled a hearing on the matter for June 30, 2004.



Modified: 06/24/2004