Footnotes...
Footnote 1: Smith has a criminal history, which has not been disclosed to investors. In February 1987, while operating a boat dealership in McAllen, Texas, Smith was convicted and sentenced to a five-year suspended sentence for bank fraud for participating in a check-kiting scheme. U.S. v. Smith, USDC/SD/TX [Brownsville Division] 1:CR-87-00087-01. Smith was ordered to pay $100,000 in restitution and to serve 179 days if the restitution was not paid. In 1989, Smith violated his probation when he attempted to deceive his probation officer by providing false documentation of restitution payments. However, Smith's probation was not revoked and he never served any prison time because he repaid the past due restitution payments.
Footnote 2: As this Court is aware, Smith and his family members have attempted to stall the Commission's investigation by filing baseless objections to Commission-issued administrative subpoenas. A. Colin Smith, et al. v. SEC, No. W-99-CA-100; A. Colin Smith et al. v. SEC, No. W-99-CA-161; Margaret J. Smith v. SEC, No. W-99-CA-179; Margaret J. Smith v. SEC, No. W-99-CA-180; A.Colin Smith v. SEC, No. W-99-CA-181; Christopher Smith v. SEC, No. W-99-CA-182; and Kenneth Ursrey et al. v. SEC, No. W-99-CA-183. Smith's counsel has recently copied this Court with a self-serving letter, rife with false and misleading statements mischaracterizing the nature of the Commission's investigation and his spurious cooperation therein, apparently seeking to position Smith as a persecuted businessman. In fact, as is demonstrated in evidentiary materials provided herewith, Smith and Great White have been uncooperative – indeed, to the point of obstructing the Commission's lawful investigation – and their refusal to respond to reasonable requests for information detailing the claims they've made in promotional materials provided to investors, or their uses of funds obtained from investors, compel the instant civil action and the Commission's need for emergency relief.
Footnote 3: The Commission filed a civil injunctive action in this court against five of these promoters, charging them with anti-touting and scalping violations. SEC v. Anita Carlisle, d/b/a Carlisle Communications, et al. [USDC, WD/TX, W98CA352]. As noted in the Blair Declaration, two of the defendants in this matter, Messrs. Sitra and Brommer, received undisclosed compensation from Great White, in the form of the company's stock.
Footnote 4: In each instance, whether the Great White shares were sold directly into the market place or to private placement purchasers for distribution, Smith instructed the company's transfer agent not to place any manner of restrictive legend on the shares, to create the appearance that these were unrestricted, freely tradable shares. Use of a restrictive legend is recognized as a “simple method of assuring that no public distribution would take place” and Smith's instructions to the contrary suggest his knowledge of, if not intent for, of a public distribution of such shares.
Footnote 5: As is Section 4(2), Regulation D is available only to issuers, and not for secondary market transactions conducted by the putative private placement purchasers. See, Regulation D, Preliminary Note 4. See also, Preliminary Note 4 (“Regulation D is not available to any issuer for any transaction or chain of transactions that, although in technical compliance with these rules is part of a plan or scheme to evade the registration provisions of the Act.”).
Footnote 6: The Commission need not prove investor reliance as an element of fraud. SEC v. Rana Research, Inc., 8 F.3d 1358, 1364 (9th Cir. 1993) ("[R]eliance is not an element of a Rule 10b-5 violation by misrepresentation; rather it is an element of a private cause of action for damages implied thereunder."); Los Angeles Trust Deed & Mortgage Exchange v. SEC, 264 F.2d 199, 210 (9th Cir. 1959) ("The fraud known to common law which required reliance on the alleged false statements and resulting damage to the person addressed is not the fraud required to constitute a violation of [Section] 17(a)(1) of the Securities Act[.]")
Footnote 7: The Fifth Circuit described a Ponzi scheme Rosenberg v. Collins: “[Charles] Ponzi seduced customers into loaning him money on the written promise that he would repay them, in ninety days, three dollars for every two dollars loaned to him. The funds were deposited in bank accounts, and Ponzi used these bank accounts to pay profits after ninety days. The profits were illusory, of course, being only the funds received from new customers.” 624 F.2d 659, 663-64 (5th Cir. 1980). It should go without saying that Great White's dividend payment, from funds received from investors, constitutes fraud.
Footnote 8: An evidentiary hearing is not required on the Commission's request to appoint a receiver where the records disclose sufficient facts to warrant such an appointment. Bookout v. Atlas Financial Corp., 395 F. Supp. 1338 (N.D. Ga. 1974), aff'd, 514 F.2d 757 (5th Cir. 1975); United States v. Mansion House Center N. Redevelopment Co., 419 F. Supp. 85, 87 (E.D. Mo. 1976) (Assets insufficient to cover liabilities). The appointment of a receiver is also appropriate in cases of clear necessity to perfect property rights. 12 Wright and Miller, "Federal Practice and Procedure" at § 2983. See Los Angeles Trust Deed & Mortgage Exch. v. SEC, 285 F.2d 162 (9th Cir.), cert. denied, 366 U.S. 919 (1960). |
