Tuesday, June 17, 2008
The SEC obtained an order freezing assets and granting other emergency relief in a pending action in Dallas federal court involving what the Commission contends is a fraudulent offering of securities, known as Secured Debt Obligations ("SDOs"), by W Financial Group, LLC. ("W Financial"). The district court entered orders freezing the defendants' assets, requiring an accounting and repatriation of assets, and ordered defendants to preserve documents and submit to expedited discovery. The Court scheduled a preliminary injunction hearing for June 25, 2008, at which time the Court will consider the Commission's request to appoint a receiver to marshal and conserve assets for the benefit of defrauded investors.
The Commission's Complaint, filed on March 21, 2008, alleges that the defendants, directly and through sales agents, raised at least $17.9 million from at least 182 investors between September 2006 and February 2007. According to the Complaint, W Financial investors, primary senior citizens and retirees, were lured into purchasing SDOs through a series of misrepresentations and omissions that portrayed SDOs to be as safe as FDIC-backed certificates of deposit. The Complaint further alleges that the defendants misappropriated and misused the majority of W Financial investor funds, spending millions of dollars, for example, to purchase and operate high-risk business enterprises such as a retail electric power provider and a custom home-building company. In addition to the relief granted by the court, the Complaint seeks civil penalties and disgorgement of ill-gotten gains against each defendant.
Simultaneously with the filing of the Complaint, the Commission, with the consent of defendants, asked the Court to appoint a Special Master to oversee the liquidation by defendants of certain assets and to take custody of the proceeds from these sales.