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SECURITIES AND EXCHANGE
COMMISSION
Litigation Release No. 15111 / October 7, 1996
SECURITIES AND EXCHANGE COMMISSION v. KENNETH E. EDWARDS, ROGER
S. CHEDESTER, DONALD E. LUNA, A.R. GRANT MOREHOUSE,
AND THE FIRST AMERICAN COMPANIES, INC., United
States District Court for the Eastern District
of California, CIV-s-96 1716 GEB GGH.
The Securities
and Exchange Commission announced the filing of
a complaint with the United States District Court
for the Eastern District of California against
Kenneth E. Edwards and Roger S. Chedester of the
Sacramento, California area, and Donald E. Luna,
A.R. Grant Morehouse and the First American Companies,
Inc. of Hilton Head, South Carolina. The Commission's
complaint alleges that each of the defendants
engaged in securities fraud by making misrepresentations
in issuing or selling securities.
The complaint
alleges that from July 1994 through January 1995,
Edwards sold over $3 million of "prime bank"
securities in three separate, but related, schemes.
In the schemes at issue, investors' money was
purportedly to be used to trade actively in the
off-balance sheet debt obligations of unnamed
"prime banks" to generate profits of
between 100 percent a year to 570 percent over
a 19 week period. In each case, investors were
also told that their funds were completely safe,
as the underlying investment was secured by gold,
treasury bills or letters of credit. In reality,
the off-balance sheet debt obligations purportedly
being traded do not exist, and the securities
sold to investors a sham.
The complaint
further alleges that the first of the three investments
sold by Edwards, with assistance from Chedester,
involved $1.2 million of debentures issued by
First American, led by Luna and assisted by Morehouse.
The debentures offered returns of 100 percent
per year, with no risk to principal as the debentures
were secured by gold or gold certificates. In
the second scheme, Edwards induced investors to
place $700,000 with an entity operating out of
Switzerland for trading in "prime bank"
debt. In the third, Edwards devised his own "Private
Investment Program" for which he and Chedester
raised approximately $1.1 million. Of the $3 million
raised, approximately $2.5 million has not been
returned.
The complaint
alleges that each of the defendants knew, or was
reckless in not knowing, that the representations
each made in issuing and selling the respective
securities were false. The Commission seeks an
order permanently enjoining (i) Edwards from violating
Sections 5(a), 5(c) and 17(a) of the Securities
Act of 1933, Sections 10(b) and 15(a) of the Securities
Exchange Act of 1934, and Rule 10b-5 thereunder;
(ii) Chedester from violating Section 17(a) of
the Securities Act of 1933, Sections 10(b) and
15(a) of the Securities Exchange Act of 1934,
and Rule 10b-5 thereunder; and Luna, Morehouse
and First American from violating Sections 5(a),
5(c) and 17(a) of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of
1934, and Rule 10b-5 thereunder. In addition,
the Commissions complaint seeks disgorgement from
each defendant of all ill-gotten gains
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