U.S. Securities & Exchange Commission
Litigation Release No. 19314 / July 27, 2005
Securities and Exchange Commission v. Alanar, Inc., et al. (U.S.D.C. S.D. Ind., Civil Action Number 05-cv-1102-JDT-TAB, filed July 26, 2005)
On July 26, 2005, the Commission obtained an Order of Permanent Injunction and Other Relief (Order of Permanent Injunction) against:
enjoining them from violating the anti-fraud provisions of the federal securities laws. The Order of Permanent Injunction also freezes the assets of Alanar, the Reeves and six companies controlled by the Reeves, pending the resolution of the appropriate amount of disgorgement and civil penalties, requires the defendants to give an accounting, prohibits document destruction, permits expedited discovery, requires the defendants to comply with certain undertakings and appoints Bradley W. Skolnik of the Indianapolis law firm Stewart & Irwin, P.C., an independent monitor who will have day-to-day approval authority over all facets of the defendants’ operations. The defendants consented to the Order of Permanent Injunction and Other Relief without admitting or denying the allegations of the Commission’s complaint.
In its complaint, the Commission charged that the Reeves’ investment scheme was an “affinity fraud.” The Commission alleged that by employing solicitations appealing to the Christian faith of many investors, the Reeves succeeded in raising over $120 million from investors in church bonds (bondholders) and over $50 million from investors in the Bond Funds (Bond Fund investors). Through their control of Alanar, the Bond Funds and the Paying Agents, the Reeves allegedly misused funds that churches paid to the Paying Agents to be held in trust for the benefit of bondholders, misused Bond Fund investor proceeds, and misrepresented the rates of return of the Bond Funds. For instance, from September 2003 to May 2005, the Reeves and the Paying Agents allegedly diverted $8 million worth of church funds held in trust for the repayment of bondholders into an online brokerage account. The Reeves allegedly used those funds to trade stock and equity options, loan money to at least one church and to make unsecured loans to themselves and companies they controlled. Similarly, the Reeves allegedly caused the Bond Funds to loan investor proceeds to other Bond Funds, and transferred almost $5 million worth of Bond Fund investor proceeds to their companies.
The complaint alleged that, by the above conduct: Alanar, the Reeves, and the Bond Funds violated Section 17(a) of the Securities Act of 1933 (“Securities Act”), and Section 10(b) of the Securities Exchange Act (“Exchange Act”) and Rule 10b-5 thereunder; the Paying Agents violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and Alanar violated Section 15(c)(1) of the Exchange Act. In addition to the permanent injunctive relief already obtained, the Commission also seeks the entry of an order requiring Defendants to disgorge ill-gotten gain and pay civil penalties.