SEC Accuses Co. of Pyramid Scheme
By Marcy Gordon
AP Business Writer
Tuesday, March 17, 1998; 6:24 p.m. EST
WASHINGTON (AP) -- Regulators have accused officials of International Heritage Inc. of orchestrating a pyramid scheme that raised more than $150 million from over 155,000 investors -- one of the biggest such schemes ever.
The Securities and Exchange Commission on Monday filed an emergency civil complaint in U.S. District Court in Atlanta against the company and three top officials, alleging fraud and seeking unspecified civil penalties and repayment of ill-gotten gains.
A hearing was scheduled for March 24.
U.S. District Judge Richard Story issued a temporary restraining order against International Heritage and the three officials -- chairman, president and chief executive Stanley H. Van Etten, and Claude W. Savage and Larry W. Smith, both founders and directors.
Story also appointed a receiver for the company and froze its assets.
An attorney for the company, Mike Wolensky, didn't immediately return a telephone call seeking comment.
"The fact that we are experiencing a bull market does not necessarily mean that all investment choices are good choices," SEC Enforcement Director William McLucas said in a statement. "Investors should continue to be cautious."
International Heritage, based in Raleigh, N.C., and formerly known as Kara International Inc., has described itself as a seller of jewelry, luggage and other items.
But the SEC alleged in its complaint that starting in April 1995, Van Etten, Savage and Smith solicited people nationwide to invest in a pyramid scheme, using the Internet to promote the scheme, which was portrayed as investing in business centers.
In such swindles, funds from new investors are used to pay off promised returns to other investors.
The three defendants knowingly misrepresented the company's financial condition to investors and concealed the fact that it was operating a pyramid scheme, the SEC charged.
The $150 million they are alleged to have raised represents one of the largest such schemes federal regulators have ever seen, SEC officials said.
"That's a big pyramid scheme," Thomas Newkirk, associate director of the SEC's enforcement division, said in a telephone interview. He said it exceeded the amounts involved in similar such activities in recent years.
On Friday, the SEC suspended until March 26 trading in International Heritage shares. The market watchdog agency said it took the action because of questions about the accuracy of the company's official statements regarding, among other things, the return that investors could expect to get on their investment, and the background of the company.
The alleged pyramid scheme, however, was not officially disclosed until Tuesday.
The trading halt capped a week in which the market value of International Heritage's shares, traded in the over-the-counter market, soared from $330 million to $1.2 billion. |
