U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19326 / August 4, 2005
SECURITIES AND EXCHANGE COMMISSION v. RUSSELL W. JONES and R&D MARKETING, INC., No. 5:02CV118 (Turk, J.) (U.S.D.C., W.D. Va.)
DISTRICT COURT ISSUES JUDGMENT IN "PRIME BANK" SECURITIES FRAUD CASE AGAINST UNREGISTERED UTAH BROKER AND HIS COMPANY
On July 25, 2005, Judge James C. Turk of the United States District Court for the Western District of Virginia entered final judgments against both defendants in the Commission's "prime bank" case arising from the promotion of a fraudulent investment program to investors throughout the United States, including many located in the Western District of Virginia. The defendants are Russell W. Jones of Logan, Utah and a company he controlled, R&D Marketing, Inc., a Utah corporation. Without admitting or denying the allegations of the Commission's complaint, the defendants consented to the entry of final judgments that permanently enjoin them from violating the antifraud, securities registration, and broker-dealer registration provisions of the federal securities laws. The defendants' disgorgement obligations were waived, and no civil penalties were imposed against them, based on R&D Marketing's financial condition, and in the case of Jones, based on recognition of his $842,176 restitution order in a parallel criminal case. Jones has also agreed to be bared from association with any broker or dealer pursuant to a follow-on administrative proceeding.
The Commission's complaint alleges that the defendants acted as the primary broker and wholesaler of a fraudulent bank-instrument trading program through which they defrauded investors throughout the United States of at least $1.9 million, including at least $240,000 from Virginia investor-victims. According to the complaint, Jones, acting through R&D Marketing, dispatched a network of local agents around the country, including one who solicited investors in Virginia, to market the program. Jones supplied these agents, according to the complaint, with fraudulent representations that were echoed to investors: (1) that investors' funds would be used to trade in European bank instruments; (2) that this activity would yield returns in excess of 200% within forty-five days; and (3) that the International Monetary Fund ("IMF") sponsored the program. The complaint further alleges that, rather than investing the investors' funds in such a bank-instrument trading program, Jones unilaterally decided to wire the funds to an altogether different fraudulent program, supposedly involving the purchase and re-sale-at rapid and exorbitant profits-of assets from estate auctions in Europe. The complaint further alleges that Jones failed to inform the investors or obtain their consent, and that the funds disappeared shortly after Jones wired them in June 1997. Finally, the complaint alleges that thereafter, and continuing into 2002, Jones lulled investors by (among other things) assuring them that they would still realize the promised returns by sharing in the proceeds of yet another fraudulent program.
The Court's final judgments permanently enjoin both of the defendants from violating securities registration, broker-dealer registration, and antifraud provisions of the federal securities laws as set forth in Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rule 10b-5.
In a related matter, the United States Attorney's Office for the Western District of Virginia prosecuted Jones for his role in this fraud. Jones pleaded guilty to the criminal charges and is now serving a 14 month sentence in federal prison. See, United States v. Russell W. Jones et al., No. 5:02Cr10093 (Michael, J.) (W.D. Va., filed Sept. 12, 2002, superseding an earlier indictment that had been filed under seal on June 12, 2002).
The Commission wishes to thank the United States Attorney's Office for the Western District of Virginia, the Federal Bureau of Investigation, the United States Postal Inspection Service, the Internal Revenue Service and the Virginia State Corporation Commission for their assistance in connection with this matter.
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This case is part of the SEC's continuing effort to combat prime bank fraud and to alert the public to the risks posed by these phony instruments. The risks of this type of fraud and warnings about how to avoid it are spelled out in the Interagency Advisory: Warning Concerning "Prime Bank" Notes, Guarantees, and Letters of Credit and Similar Financial Instruments (October 21, 1993), and other information which is available through the SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml