Tuesday, September 9, 2008
On August 18, 2008, the United States District Court for the Northern District of Illinois entered an order permanently enjoining William K. Boston, Jr. (Boston) from violating certain of the antifraud and registration provisions of the federal securities laws. The SEC alleged that Michael E. Kelly and 25 other defendants, including Boston and his former business, Century Estate Planning, Inc. (Century Estate Planning), participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Lease investments. Universal Leases were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others, including Boston and Century Estate Planning, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Boston and Century Estate Planning, collected undisclosed commissions totaling more than $72 million. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges the leasing agent was a small Panamanian travel agency controlled by Kelly and for most of the scheme its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and others, including Boston and Century Estate Planning, failed to disclose key facts about the Universal Lease investments, including the risks of the investments and that more than $72 million in investor funds were used to pay commissions as high as 27% to the selling brokers. The SEC continues to pursue its claims against Boston for disgorgement and civil penalties. The SEC's action against the remaining defendants is also pending.