Thursday, April 16, 2009
The United States District Court for the Northern District of Illinois entered an order permanently enjoining Michael E. Kelly (Kelly), a former resident of North Liberty, Indiana and Cancun, Mexico, in connection with a civil injunctive action filed in September, 2007 against Kelly and 25 other defendants. The order, entered with Kelly's consent, permanently enjoins him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC's complaint in this matter charges that Kelly and 25 other defendants 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 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 Kelly used a nationwide network of unregistered salespeople who sold the Universal Leases and collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico through a number of foreign entities in Mexico and Panama. 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 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 Kelly for disgorgement and civil penalties. The SEC's action against the remaining defendants is also pending.