Monday, August 1, 2005

SEC Puts Loan Program for Churches Out of Business For Fraudulent Conduct

A permanent injunction was entered at the the SEC's request freezing the assets of Alanar Inc. and Vaughn A. Reeves, Sr., Vaughn A. Reeves, Jr., J. Christopher Reeves, Joshua C. Reeves -- along with six companies controlled by the Reeves family -- for violations of the antifraud provisions of the federal securities laws.  As described in the SEC's complaint (here) and Litigation Release (here):

the Commission charged that the Reeves’ investment scheme was an “affinity fraud.” The Commission alleged that by employing solicitations appealing to the Christian faith of many investors, the Reeves succeeded in raising over $120 million from investors in church bonds (bondholders) and over $50 million from investors in the Bond Funds (Bond Fund investors). Through their control of Alanar, the Bond Funds and the Paying Agents, the Reeves allegedly misused funds that churches paid to the Paying Agents to be held in trust for the benefit of bondholders, misused Bond Fund investor proceeds, and misrepresented the rates of return of the Bond Funds. For instance, from September 2003 to May 2005, the Reeves and the Paying Agents allegedly diverted $8 million worth of church funds held in trust for the repayment of bondholders into an online brokerage account. The Reeves allegedly used those funds to trade stock and equity options, loan money to at least one church and to make unsecured loans to themselves and companies they controlled. Similarly, the Reeves allegedly caused the Bond Funds to loan investor proceeds to other Bond Funds, and transferred almost $5 million worth of Bond Fund investor proceeds to their companies.

Churches and their members are often easy prey in investment schemes because of the trust between members who share, at least ostensibly, the same religious beliefs.  (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2005/08/sec_puts_loan_p.html

Civil Enforcement, Fraud, Securities | Permalink

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Tracked on Dec 8, 2005 9:24:16 AM