U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19365 / September 7, 2005
Securities and Exchange Commission v. Gary L. McNaughton, Individually and d/b/a The Haven Equity Company, and Andrew K. Lech, Civil Action No. 1:03cv1249 (U.S.D.C. N.D. OH., filed June 23, 2003) (Judge Dan A. Polster)
The Securities and Exchange Commission announced that on August 23, 2005, the Honorable Dan A. Polster, Judge in the United States District Court for the Northern District of Ohio, entered a final judgment against Defendant Andrew K. Lech, by default, which permanently enjoins Lech from violating Sections 5(a), 5(c) and 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 orders Lech to pay $2,791,435.43 in disgorgement and prejudgment interest and a $120,000 civil penalty.
The Commission's First Amended Complaint alleged that from at least 1999 through June 2003, Lech and Defendant Gary L. McNaughton defrauded approximately 150 people out of at least $17 million by operating a Ponzi scheme. Specifically, the First Amended Complaint alleged that when McNaughton offered and sold his Haven Equity notes, he told investors that he would send their money to Lech who was purportedly going to use his expertise in stock options trading to generate guaranteed annual returns of 15% to 20%. The First Amended Complaint alleged that Lech knew that the investor funds that he received from McNaughton were raised from investors and that McNaughton told the investors that their funds were being invested by Lech in stock options. Instead of investing the funds, Lech transferred some of the investors' funds back to McNaughton to pay other investors their monthly "interest." Lech also used some investor funds to pay his personal expenses. Thereafter, when the monthly payments stalled, Lech and McNaughton attempted to perpetuate their scheme by convincing investors to transfer their Haven Equity notes to Lech who offered his own "Lech notes." Under the Lech notes, Lech personally guaranteed McNaughton's investors their principal and interest. However, investors who executed Lech notes neither received their returns as guaranteed nor were repaid their principal. The First Amended Complaint alleged that Lech did not have the funds to fulfill the guarantee he made to investors.
For additional information, see Litigation Release No. 18202 (June 26, 2003) and No. 18875 (September 9, 2004).