This is your Feb. 6, 2014 edition of the State Securities Board Bulletin, a biweekly roundup of regulatory news and investor education material.
Promoters of fraudulent investments
typically don’t have impressive business credentials. That was certainly true for
the defendants in three separate fraud cases that resulted in federal and state
prison sentences totaling 125 years. Even before they started selling the
investments that led to their prison terms, the defendants’ backgrounds included
a pending indictment, bankruptcy filings, and regulatory sanctions. None of
these facts were disclosed to their investors.
While it’s unrealistic to expect
promoters to admit their legal and ethical shortcomings, investors can do their
own research – or ask a family member or trusted third party to do it for them
– to get the answers.
There are steps an investor can
take on his or her own as well. Demand a clear explanation of the investment
being offered and a written prospectus outlining all risks. The cliché “If it
sounds too good to be true, it probably is” is older than dirt. It’s also true.
Check to see if the investment
salesperson is registered with the State Securities Board – if the answer is
yes, request a free regulatory background check on brokers and investment advisers. If the answer is no, ask why not, then check the answer with the State
Securities Board.
There’s a financial reward from
getting your questions answered – the payoff of money not lost.
Here’s a rundown of the three
cases:
Eddie Lacy Stivers III was sentenced
in Hood County State District on Jan. 31 after being convicted of first-degree
securities fraud (85 years), first-degree theft (85 years), and second-degree
securities fraud (20 years). The sentences will be served concurrently.
Even after he
was indicted on those charges in 2012, Stivers engaged in the fraudulent
sale of stock and promissory notes through a company called Life Style
Protectors and Advisors LLC. His previous companies were Patriot Insurance Co.
and Patriot Holding Co. According to an Affidavit for Evidentiary Search Warrant issued in
Tarrant County, Stivers didn’t disclose to investors in Life Style Protectors
that he had been indicted in Hood County.
Stivers sold
investment contracts that supposedly would have given investors shares in
Patriot Holding and Patriot Insurance and allowed them to participate in the
profits of any affiliate company of Patriot Holding.
The son of one
elderly investor in the fraudulent notes sold by Life Style Protectors
testified that his mother, now deceased, invested more than $117,000 with
Stivers and lost it all.
Stivers, like
a lot of con men, used investors’ money to pay some of his personal expenses. But
he also used the money to make payments to his criminal defense lawyer.
Dale Barron, an attorney with the Enforcement Division of the Texas
State Securities Board, prosecuted Stivers with Hood County District Attorney
Rob Christian.
William Paul Hudson of Plano was convicted of theft in an oil and gas scam and
sentenced to 10 years in state prison on Jan. 31 in Collin County State
District Court. Hudson also received a sentence of 10 years, probated on
charges of securities fraud and money laundering, and was ordered to pay
restitution.
Hudson stole
approximately $600,000 from at least 50 investors in multiple oil and gas
projects. One, the Gulf Coast Project, was supposed to re-enter existing wells
in Jackson, Gonzales, and Jim Wells counties. Hudson and his company also
raised money for projects unrelated to Gulf Coast, but he directed only a small
fraction of investors’ funds to oil and gas projects.
Hudson had his
troubles even before soliciting investors in 2007 and 2008. The Texas
Securities Commissioner suspended and fined Hudson in 2003 for selling unregistered
securities, and Hudson and his wife had filed for bankruptcy three times from
1998 to 2007.
Enforcement Division attorneys Tina Lawrence, Alexis Goldate, and
Travis Iles served as the special prosecutors in the case against Hudson, which
was done in cooperation with the Collin County District Attorney's Office.
David Kevin Lewis, also known as David Shane Lewis, was the chairman and director
of field operations for Richardson-based Always Consulting Inc.. He helped
direct a multi-million-dollar scam based on the sale of oil and gas offerings.
A U.S. District Court jury in Dallas convicted Lewis Sept. 4 on one count of
conspiracy to commit securities fraud and 23 counts of securities fraud.
Lewis was sentenced Jan. 24 to 30 years in federal prison and ordered to pay $2.5
million in restitution. He was one of ACI's "closers," brought in to finalize a deal after the company's "fronters" -- cold callers -- had lined up good prospects.
Spending time
at the courthouse is old hat for Lewis. In 2000, he was convicted of federal
fraud charges in a case involving oil and gas offerings. In 2003, the Securities
and Exchange Commission enjoined him from engaging in fraud in the offer or
sale of securities. In 2007, the Texas Securities Commissioner affirmed an Emergency Cease and Desist Order that found ACI, Lewis,
and other company officials had engaged in fraud in the offering for sale of
securities.
Lewis didn’t
disclose any of those facts to investors in the so-called Rattlesnake Springs
Drilling Project on the Osage Nation Reservation in Oklahoma. And contrary to
the assertions by company officials, ACI didn’t have the money to launch the
project or the political influence they claimed to have with members of the
Osage Nation.
The cases
against ACI officials – besides Lewis, two others have been conviced and
sentenced to prison -- were prosecuted by the U.S. Attorney’s Office in Dallas;
Suzanne Steinmetz, an enforcement attorney in
the Dallas office of the State Securities Board, served as a Special Assistant
U.S. Attorney.
ABOUT THE TEXAS STATE SECURITIES BOARD
The State Securities Board
registers securities offered or sold in Texas; oversees the firms and
individuals selling securities or providing investment advice; enforces the
Securities Act through criminal, civil and administrative penalties; and
provides investor
education presentations and material. For more information, contact Robert Elder,
Communications, at relder@ssb.state.tx.us or 512-305-8386.
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