Sunday, October 4, 2009
The SEC settled charges against HedgeLender LLC, a stock-based loan broker located in Philadelphia, and its two principals, Daniel W. Stafford and Fred R. Wahler, Jr., for their conduct in connection with a fraudulent stock-based loan scheme orchestrated by Michael and Melissa Spillan through One Equity Corporation and other companies. Upon filing of the complaint, the defendants consented to the entry of orders, without admitting or denying the allegations of the complaint, that will permanently enjoin them from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. The orders also provide that the Court shall order disgorgement of ill-gotten gains, prejudgment interest and civil penalties in amounts to be determined upon later motion of the Commission.
The Commission’s complaint alleges that in February 2006, HedgeLender entered into an agreement with One Equity through which HedgeLender referred borrowers to One Equity in exchange for commissions on successful stock-based loan transactions. One Equity was not, however, a legitimate lender. The Spillans, through One Equity, induced borrowers to transfer ownership of publicly traded stock to them as collateral for purported non-recourse loans. They represented that all shares would be returned to borrowers upon repayment of the loans. Instead, the Spillans generally liquidated the shares to fund the loans and failed to maintain adequate cash reserves necessary to repurchase and return the shares to borrowers.
According to the complaint, HedgeLender promoted One Equity’s stock-based loan program as Hedgelender’s Star HedgeLoan®. On its website, HedgeLender represented to potential clients that it had certified its stock-based loan programs, vetted the professional reputations of those that administered the programs, and took steps to ensure the security of borrowers’ shares. In reality, Stafford, a resident of Gaithersburg, Maryland, and Wahler, a resident of Philadelphia, conducted minimal due diligence and failed to investigate “red flags” that cast doubt on One Equity’s ability to administer and fund its stock-based loans. Adequate due diligence would have revealed that One Equity had no funding source and that the Spillans had never run a legitimate stock-based lending enterprise. The complaint further alleges that from February 2006 through at least November 2007, HedgeLender referred approximately 54 borrowers to One Equity and received approximately $1.7 million in commission payments.