U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19503 / December 20, 2005
Securities And Exchange Commission v. Terry L. Dowdell, et al., Civil Action No. 3:01CV00116 (W.D. Va.) (Honorable James H. Michael, Jr.)
Court Orders Illinois Lawyer to Pay $640,033 in Connection with Ponzi Scheme
The Securities and Exchange Commission announced that on December 14, the Honorable Judge Norman K. Moon, U.S. District Court Judge for the Western District of Virginia, Charlottesville Division, entered a final judgment against Kenneth G. Mason, an attorney residing in Wilmette, Illinois, for his role in a massive international Ponzi scheme orchestrated by Terry Dowdell that raised more than $70 million from investors in the U.S. and abroad. Dowdell previously pled guilty to criminal charges of securities fraud, wire fraud and money laundering stemming from this scheme. On July 21, 2004, Dowdell was sentenced to 15 years in jail for his conduct in the illegal scheme.
The judgment against Mason, to which he consented without admitting or denying any of the allegations in the complaint, requires him to pay disgorgement of $540,105, plus $99,928 in prejudgment interest. This amount constitutes all of the commissions that Mason received in connection with his introduction of investors to this fraudulent program The court also imposed a permanent injunction prohibiting future violations of anti-fraud provisions of the federal securities laws, contained in Sections 17(a)(1), (2) and (3) of the Securities Act of 1933 and Sections 10b-5 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The SEC's enforcement action, commenced on November 19, 2001, arose out of a fictitious investment program that Dowdell operated through Vavasseur Corporation, a Bahamian company controlled by Dowdell. Investors in this program (the Vavasseur Program) were required to sign an investment contract with Vavasseur. The contract falsely represented that investor funds would be maintained in a bank account registered as "Vavasseur Corp. for the benefit of (Client name)," and committed Vavasseur: "to use its best efforts to achieve anticipated profits. . . in an amount equal to or exceeding Four Percent (4%) of the Client's funds under management for each week in which trading occurs. [Vavasseur] shall use its best efforts basis to cause trading of Client's funds in a minimum of forty weeks during each fifty-two week Agreement term." According to the contract, this would result in annualized gross return of 160%.
As Dowdell admitted in this action, and the Court has previously found, there were no "trades" or "investments" made by Vavasseur. Instead old investors were paid their purported "profits" from new investor funds in typical Ponzi scheme fashion. In the course of perpetrating this fraud, millions of dollars of investors funds were misappropriated by Dowdell and the marketers of the Vavasseur Program.
Mason introduced the first two investors into the program, one of whom was Birgit Mechlenburg, a recidivist securities law violator who had previously been sanctioned by the Securities and Exchange Commission. Mechlenburg became one of the principal marketers of the Vavasseur program, raising more than $13 million from investors in the United States and Europe. Mechlenburg was also named in this action, and the Court entered a default judgment against her in May 2003, ordering her to pay approximately $1.6 million in disgorgement plus a civil penalty.
Additional information concerning the SEC's lawsuit against Dowdell can be found in Litigation Release No. 17242, November 19, 2001; Release No. 17454, April 2, 2002; Release No. 17553, June 10, 2002; Release No. 17880, October 10, 2002; Release No. 17881, October 10, 2002; Release No. 17905, December 19, 2002; Release No. 17999, February 26, 2003; Release No. 18029, March 11, 2003; Release No. 18198, June 20, 2003; and Release No. 18143, May 19, 2003.
Additional information on how prime bank and other banking-related investment schemes work can be found at the SEC's Prime Bank Fraud Information Center (http://www.sec.gov/divisions/enforce/primebank.shtml) in the enforcement section of the SEC's Web site, at the Receiver's website, located at http://www.dowdell-receivership.com.