U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18978 / November 18, 2004
Securities and Exchange Commission v. Emvest Mortgage Fund, LLC, Emvest, Inc., and Milon Lyle Brock, Civil Action No. 04 CV 2295 DMS (LSP) (S.D.Cal.)
SEC HALTS $18 MILLION SECURITIES FRAUD IN SAN DIEGO
On November 16, 2004, the Securities and Exchange Commission filed an emergency action to halt an $18 million, ongoing securities fraud perpetrated by three San Diego-based defendants -- Emvest Mortgage Fund, LLC (the Fund); Emvest, Inc. (Emvest), the Fund's manager; and Milon Lyle Brock, age 60, the Fund's chief executive officer. Also on November 16, the Honorable Dana M. Sabraw, United States District Judge for the Southern District of California, issued an order appointing a temporary receiver over both companies and freezing distributions, among other things.
The Fund purports to raise capital from investors to make and purchase loans secured by California real property. The Commission's complaint, filed in federal court in San Diego, alleges that the Fund, Emvest, and Brock misrepresented and failed to disclose to potential and existing investors material information regarding the use of investor capital, investor returns, and the preservation of investor capital.
Specifically, the complaint alleges that the Fund, Emvest, and Brock misrepresented that investors' capital would be used to make and purchase loans secured by real property. Instead, the defendants used substantial amounts of new investors' capital to pay returns to existing investors and to cover the Fund's operating losses. In addition, despite an explicit prohibition in the Fund's offering prospectus, the defendants used investor capital to pay finder's fees or commissions to a company affiliated with the Fund.
Additionally, the Commission's complaint alleges that the defendants represented that the Fund would pay investors a 12% return on their capital, but failed to disclose to investors that all or a substantial portion of their 12% return was funded with new investor capital. The complaint also alleges that the defendants misrepresented that the Fund's investment objectives included preserving investors' capital, when they were actually decreasing investors' capital by distributing it as part of investor returns. Since 2002, the Fund has raised approximately $18 million from 270 investors.
The Court issued an order temporarily enjoining all of the defendants from future violations of the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and (1) freezing distributions; (2) appointing a temporary receiver; (3) prohibiting the destruction of documents; (4) expediting discovery; and (5) requiring accountings. The Commission also seeks preliminary and permanent injunctions and disgorgement with prejudgment interest against all defendants, and civil penalties against Brock and Emvest.
A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for December 3, 2004, at 10:30 a.m.
Investors may direct their inquiries to the temporary receiver, Dennis M. Murphy, at (626) 794-0288.