Wellspring Capital Group, Inc. and Blake A. Prater

On September 8, 2003, the SEC obtained a temporary restraining order, asset freeze, and other relief against Blake Prater and his company, Wellspring Capital Group. The SEC alleged the defendants operated a sophisticated Internet Ponzi scheme raising at least $3 million from thousands of investors. The SEC alleged the defendants fraudulently guaranteed exorbitant returns as high as 1,000 percent per year. For more information about the SEC's action, you can read Litigation Release Nos. 18336 (Sept. 10, 2003) and 18562 (Jan. 30, 2004).

The Court also appointed Lewis K. Wise as Receiver to collect, liquidate, and distribute assets to defrauded investors. Mr. Wise has provided the following update as to the status of the claims process. As used below, the term “domestic claim” is a claim of a U.S. resident or a non-U.S. resident whose investment was deposited into an account in the U.S. controlled by Wellspring or Prater. A “foreign claim” is a claim of a non-U.S. resident whose investment was deposited into a non-U.S. account.

Domestic Claims

The Receiver has completed the review of virtually all domestic claims and mailed to each claimant notice of the Receiver’s determination of the claimant’s net loss. The time for filing appeals with the Receiver of those preliminary determinations has expired. Each appeal which was filed has been resolved by the Receiver and final determinations have now been made as to all domestic claims.

Since there are insufficient funds to reimburse all claimants in full and since the Receiver is still in the process of locating and recovering assets of Wellspring and Prater, claimants will receive pro rata payments in installments. However, Prater has filed a Motion to Set Aside the Receiver’s Determinations of net losses with U.S. District Judge Kravitz who is presiding over this matter. Until this motion has been resolved by the Judge, the Receiver cannot make the first installment of the reimbursement payments to claimants. The final installment to claimants will be made when the process of recovering the assets of Wellspring and Prater has finalized.

Foreign Claims

Under the Court’s Order governing the claims process, an eligible claimant is, among other things, one who transferred funds to Wellspring “. . . that were deposited into a bank account controlled by Wellspring and/or Prater located in the United States.” Approximately 350 claims were received from non-U.S. residents whose funds were apparently deposited into foreign bank accounts. Although these claims have been preliminarily denied, the Receiver is attempting to obtain information from Prater regarding these foreign accounts to determine whether some of these funds may have been transferred to U.S. bank accounts and, if so, the total amount of such transfers. Because Prater has failed to provide the requested information, the Receiver has filed a motion with the Judge to require Prater to provide the requested information. Because of these complications, it is not possible at this time to predict when these foreign claims will be finally resolved.

If you have questions or want additional information, you can contact the Receiver’s paralegal, Pam Spielman, at pspielman@roginlaw.com.

http://www.sec.gov/divisions/enforce/claims/wellspring.htm