U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 18856 / August 26, 2004
SEC OBTAINS JUDGMENT OF OVER $6 MILLION AGAINST CONNECTICUT DEFENDANTS IN CASE INVOLVING INTERNET PONZI SCHEME
Settlement Provides for Disgorgement, Substantial Civil Penalties, and a Permanent Injunction Against Securities Law Violations
SEC v. Blake A. Prater and Wellspring Capital Group, Inc. (United States District Court for the District of Connecticut, Civil Action No. 03-CV-01524-MRK).
The Commission announced today that on August 16, 2004, the United States District Court for the District of Connecticut approved a settlement of the Commission's civil action charging Connecticut resident Blake A. Prater and his Guilford, Connecticut-based company, Wellspring Capital Group, Inc. with securities fraud. Under the terms of the Final Judgment of Permanent Injunction, Disgorgement, and Other Relief issued by United States District Court Judge Mark Kravitz, the defendants must disgorge $6 million constituting the funds raised from investors, Prater must pay $120,000 in civil penalties, Wellspring must pay $600,000 in civil penalties, and both defendants are permanently enjoined from future violations of certain provisions of the federal securities laws. The defendants have no right to appeal. The amounts collected from the defendants will be distributed to investors in the scheme.
The Court's order approving the settlement resolves an action brought by the Commission against Prater and Wellspring on September 5, 2003. The Commission's complaint alleged that the defendants operated a sophisticated Internet Ponzi scheme that raised millions of dollars from thousands of investors. It further alleged that Prater's scheme used a series of interrelated Internet web sites and a network of agents operating throughout the United States to guarantee prospective investors exorbitant returns through a variety of programs. Under one set of programs, Prater, through Wellspring, promised that, in exchange for a small sum of money, it would pay investors returns as high as 1,000 percent per year in the form of payments for various living expenses of the investors, such as car loans, rent, or business expenses. Under the terms of the settlement, the defendants neither admitted nor denied the allegations of the Commission's complaint.
On April 19, 2004, the Court had previously ordered that all funds frozen by the Court at the request of the Commission be paid into the registry of the Court. On June 7, 2004, the Court appointed a receiver, Lewis K. Wise of Rogin, Nassau, Caplan, Lassman & Hirtle, LLC of Hartford, Connecticut to distribute the disgorged assets of the defendants to victims of the fraud. Investors in the scheme with questions or claims should contact the receiver directly at Rogin Nassau, City Place I, 22nd Floor, 185 Asylum Street, Hartford, CT 01603 or at 860-278-7480.