Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, February 19, 2009

SEC Takes Action Against Ponzi Scheme Targeting Deaf Community

On February 18, 2009, the SEC obtained a court order halting an alleged $4 million Ponzi scheme perpetrated by Hawaii-based Billion Coupons, Inc. ("BCI") and its CEO Marvin R. Cooper. The Complaint alleges that BCI and Cooper raised $4.4 million from 125 investors since at least September 2007 and specifically targeted members of the Deaf community in the United States and Japan.

The Complaint, filed in federal court in Honolulu, Hawaii, alleges that BCI and Cooper represented to the investors that their funds would be invested in the foreign exchange ("Forex") markets, that investors would receive returns of up to 25% compounded monthly from such trading, and that their investments were safe. According to the Complaint, BCI and Cooper actually used only a net $800,000 (cash deposits minus cash withdrawals) of investor funds for Forex trading, and they lost more than $750,000 from their Forex trading. The Complaint further alleges that BCI and Cooper failed to generate sufficient funds from their Forex trading to pay the promised returns and operated as a Ponzi scheme by paying returns to existing investors from funds contributed by new investors. The Complaint also alleges that Cooper misappropriated at least $1.4 million in investor funds to pay for a new home and other personal expenses.

The Complaint alleges that the defendants have violated the registration and antifraud provisions of the federal securities laws, 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. In its lawsuit, the Commission obtained an order temporarily enjoining BCI and Cooper from future violations of these provisions. The Commission also obtained an order: (1) freezing the assets of BCI and Cooper; (2) appointing a temporary receiver over BCI; (3) preventing the destruction of documents; (4) granting expedited discovery; and (5) requiring BCI and Cooper to provide accountings. The Commission also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against both defendants. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for March 2, 2009, at 9:00 a.m. HST.

The Commodity Futures Trading Commission ("CFTC") also filed an emergency action against BCI and Cooper, alleging violations of the antifraud provisions of the Commodity Exchange Act, and the State of Hawaii's Department of Commerce and Consumer Affairs ("DCCA"), Office of the Commissioner of Securities, issued a preliminary order to cease and desist against BCI and Cooper.

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The BCI does not doing Madoff or Scam role. BCI Marvin Cooper is doing Forex trading and offered only to private investors in his circle of friends not to public.

Hedge fund is a private investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment funds.
Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, leverage, fee structures and the liquidity of investments in the fund. A hedge fund will nevertheless voluntarily limit the scope of its activities via its contractual arrangements with its investors, in order to give the investors some certainty over what they are investing into.
( Source: )

SEC Rule 203(b)3, Section 3(c)1 under the "Investment Company Act of 1940 (17 CFR Parts 275 and 279 )
The legislative history of section 3(c)(1) of the Investment Company Act of 1940 [15 U.S.C. 80a-3(c)(1)], a parallel section to section 203(b)(3) that was enacted at the same time, reflects Congress' view that privately placed investment companies, owned by a limited number of investors likely to be drawn from persons with personal, familial, or similar ties, do not rise to the level of federal interest. See 1940 Senate Hearings, supra note 73.

Hedge funds are not required to register as an investment company with the SEC in reliance upon an exemption pursuant to either Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940. Section 3(c)(1) of the Act, in part, provides an exemption from the Act's registration requirement for an investment company whose securities are owned by not more than 100 "

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