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UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF Plaintiff Securities and Exchange Commission ("SEC" or "Commission") alleges: SUMMARY 1. This matter involves the fraudulent offering of unregistered securities. Defendants Lewis J. McConnell, Jr., Ned L. Huggins, and Gregory T. Wood offered and sold participation interests in their Secure Private Placement Program ("the Program"), claiming that investors would receive profits of 20-25% per week through a program of trading certain unidentified "highly rated financial instruments." These offerings and sales were not registered with the Commission and did not qualify for any exemptions from registration. Moreover, no such trading program existed. 2. By engaging in this conduct, the defendants violated the registration and antifraud provisions of the securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e and 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]. JURISDICTION 3. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. 4. The Commission brings this action pursuant to authority conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Section 21(d)(1) of the Exchange Act [15 U.S.C. § 78u(d)(1)]. 5. Defendants, directly or indirectly, have made use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with the acts, practices, and courses of business alleged in this complaint. DEFENDANTS 6. LEWIS J. MCCONNELL, JR. resides in Reseda, California. At all relevant times, he was the President and CEO of Gold Stream Holdings, Inc., a Nevada corporation. 7. NED L. HUGGINS resides in Johnsonville, South Carolina. Huggins was hired by McConnell to distribute materials relating to the Program to potential investors. 8. GREGORY T. WOOD resides in Myrtle Beach, South Carolina. Wood was hired by McConnell to distribute materials relating to the Program to potential investors. THE FRAUDULENT SCHEME 9. In early 2000, McConnell sought funding for Gold Stream Holdings, Inc., a company through which he was conducting or trying to conduct his entertainment business. 10. On or about March 2000, McConnell set up a commercial deposit account in the name of Gold Stream Holdings, Inc. at First Union National Bank. This account was structured so that accounts of individual customers could be linked to the Gold Stream account, enabling McConnell to obtain account analysis statements that made it appear that the funds in the linked individual customer accounts were controlled by the Gold Stream account, when they were not. 11. McConnell intended to show these account analysis statements to established production companies and others to give the impression that Gold Stream had financial backing for its projects. 12. In order to induce investors to deposit money into this First Union account, McConnell offered them interests in the Program. 13. The Program was described in the offering materials provided by the Defendants to prospective investors as a joint venture between Gold Stream and the investor, in which the investor would participate in "a series of European and United States and other Primary and/or Secondary Capital Markets Trading Programs, involving the trading of financial instruments." 14. The offering documents asserted that Gold Stream had "the facilities and resources to identify and purchase certain highly rated negotiable financial instruments at or about wholesale, and the client base with which to provide the exit contracts for resale of these instruments," when it did not. 15. Investors were promised extraordinary rates of return. For a minimum investment of $100,000, investors were promised a return of 20% per week for 40 weeks. For a minimum investment of $1 million, the promised weekly rate of return increased to 25%. 16. Despite these purported rates of return, the offering documents declared that the Program presented "absolutely no risk" of loss because the investor supposedly retained complete control over his or her funds at all times. 17. At no time did McConnell or Gold Stream ever have the ability to participate in the trading program described in the offering documents because the "highly rated negotiable financial instruments" that were the purported basis for the trading program did not exist. 18. To enroll in the Program, investors were required to open "customer accounts" that were linked to the Gold Stream commercial deposit account that enabled McConnell to obtain account analysis statements. 19. Investors were also required to sign several other documents, including a "Joint Venture Agreement" with Gold Stream, which contained non-disclosure, non-circumvention, and confidentiality clauses prohibiting investors from discussing the Program with anyone. 20. On or about March 2000, McConnell hired Huggins and Wood to assist him in distributing the offering documents to potential investors and provided them with such documents. 21. Soon after agreeing to work for McConnell, Huggins and Wood began receiving calls from potential investors. For callers who expressed interest in the Program, Huggins and Wood prepared the offering documents for the investors' signatures, and they sent these materials to investors in a number of states, including Virginia, Florida, New Mexico, Texas, and California. 22. Huggins and Wood repeatedly warned investors not to discuss the Program with third parties, particularly First Union bank officials, explaining that the bank officials did not know the details of the Program. 23. In addition to answering questions and distributing offering documents about the Program, Wood also personally recruited at least one investor for the Program. 24. Over a six week period in March and April 2000, McConnell, Huggins, and Wood induced investors to open 21 commercial deposit accounts linked to the Gold Stream account and to deposit a total of more than $7 million into these accounts. 25. In or about April 2000, investors began contacting Huggins and Wood to ask when the trading program was going to begin. At McConnell's direction, Huggins and Wood advised investors that trading would begin either in the next several days or the next week although they had no factual basis for these statements. 26. In or about April 2000, First Union officials began to suspect that the Gold Stream account was part of a fraudulent scheme, and the bank began an internal investigation. Based on that investigation, First Union froze all accounts associated with Gold Stream, and eventually returned all funds to the depositors. FIRST CLAIM FOR RELIEF
27. Paragraphs 1 through 26 are hereby realleged and incorporated by reference. 28. During 2000, defendants McConnell, Huggins, and Wood, and each of them, directly or indirectly, offered and sold participation interests in the Program to the investing public. These participation interests were securities within the meaning of Section 2(a)(1) of the Securities Act [15 U.S.C. § 77b.2(a)(1)]. 29. No registration statement was ever filed with the Commission in connection with these offerings and sales of securities and no exemption from registration is applicable. 30. By reason of the foregoing, defendants McConnell, Huggins, and Wood, and each of them, have violated, are violating, and unless restrained will violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)]. SECOND CLAIM FOR RELIEF
31. Paragraphs 1 through 26 are hereby realleged and incorporated by reference. 32. McConnell, Huggins, and Wood distributed to the investing public offering documents relating to the Program. 33. The offering documents distributed to the investing public contained materially false and misleading statements concerning the existence of certain "highly rated financial instruments," Gold Stream's ability to purchase and sell these financial instruments, Gold Stream's participation in a "trading program," and the rates of return for the "trading program." 34. McConnell, Huggins, and Wood knew, or were reckless in not knowing, that statements made in the offering documents for the Program and otherwise were materially false and misleading. 35. McConnell, Huggins, and Wood also did not disclose in the offering documents or otherwise that the Program was essentially a scheme to obtain financing for McConnell's movie production business. McConnell, Huggins, and Wood knew, or were reckless in not knowing that this was a material omission. 36. McConnell, Huggins, and Wood, in the offer or sale of securities, by the use of means or instruments of interstate commerce or of the mails, directly or indirectly: (a) employed devices, schemes, or artifices to defraud; (b) to obtain money or property, made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon the purchasers, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 37. McConnell, Huggins, and Wood, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce or of the mails, directly or indirectly: (a) employed devices, schemes, or artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons, including purchases and sellers of such securities, in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 38. By reason of the foregoing, defendants McConnell, Huggins, and Wood, directly or indirectly, have violated, and unless restrained will violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court issue Orders: A. Permanently enjoining all defendants, and each of them, and their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice by personal service or otherwise, from violating, directly or indirectly, Sections 5(a) and 5(c) of the Securities Act of 1933 [15 U.S.C. §§ 77e(a) and 77e(c)]. B. Permanently enjoining all defendants, and each of them, and their agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice by personal service or otherwise, from violating, directly or indirectly, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. C. Ordering payment of civil monetary penalties by all defendants pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]. D. Granting such other relief as this Court may deem just and proper.
http://www.sec.gov/litigation/complaints/complr17322.htm
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