SEC Obtains Asset Freeze Against Co-Founder of Canopy Financial in $75 Million Offering Fraud
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 2, 2009 — The Securities and Exchange Commission today announced that it has filed fraud charges against a Chicago-based health care financial services company and has frozen the assets of its co-founder who allegedly provided investors with forged financial statements to lure them into a $75 million investment scheme.
The SEC alleges that Canopy Financial Inc. and its former president and chief operating officer Jeremy J. Blackburn solicited investors for a private placement offering for preferred shares of Canopy. They provided investors with a falsified audit report purportedly from accounting firm KPMG as well as bank and financial statements with false and misleading information exaggerating Canopy's financial condition. Blackburn misappropriated at least $1.7 million from the offering into his personal bank accounts.
"Blackburn personally profited by falsifying audited financial statements and bank account records to obtain financing for a purportedly up-and-coming company involved in health care technology," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office. "Our enforcement action seeks the return of fraudulently obtained funds to investors."
The Honorable Blanche M. Manning in the U.S. District Court for the Northern District of Illinois granted the SEC's request for a temporary restraining order and asset freeze against Blackburn. The SEC's case was unsealed today by the court.
The SEC's complaint alleges that Canopy and Blackburn solicited investors from at least October 2008 through August 2009, providing them with documents devised to show that Canopy had a much healthier cash balance and larger client base than it actually did. Blackburn also falsified at least one bank statement to show an account balance of approximately $8.9 million, when in fact it was a custodial account of a Canopy client that held approximately $86,952. The SEC further alleges that Canopy raised approximately $75 million from investors and paid approximately $40 million in redemptions to existing investors, including Blackburn who redeemed 250,000 shares in exchange for approximately $1.625 million.
According to the SEC's complaint, the fraud came to light when KPMG discovered that Canopy had been claiming that its financial statements for 2007 and 2008 were audited by KPMG. In fact, KPMG had never been retained by Canopy to audit its financial statements and had never opined on the financial condition of the company. KPMG issued a cease-and-desist letter to Canopy demanding that it stop the unauthorized use of KPMG's name and the audit report purportedly issued by KPMG.
The SEC's complaint, filed under seal on November 30, seeks among other things permanent injunctions against Blackburn and Canopy. In addition to seeking permanent injunctions against Blackburn and Canopy for violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], the SEC's complaint seeks the disgorgement of ill-gotten gains plus prejudgment interest and financial penalties.
The SEC's investigation is continuing.
The Commission acknowledges the assistance and cooperation of the U.S. Attorney for the Northern District of Illinois and the Federal Bureau of Investigation in this matter.
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For more information about this enforcement action, contact:
Merri Jo Gillette
Regional Director, SEC's Chicago Regional Office
Robert J. Burson
Associate Regional Director, SEC's Chicago Regional Office
James A. Davidson
Assistant Regional Director, SEC's Chicago Regional Office