UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 14705 / October 31, 1995     

SEC v. John D. Lauer, Clifton Capital Investors L.P., Konex Holding Corp., Lyle E. Neal, Copol Investments Limited and Joseph Polichemi, USDC N.D.Ill., 94 C 3770, filed June 21, 1994.

     The U.S Securities and Exchange Commission (Commission) announced that on October 24, 1995, the Honorable Wayne R. Andersen of the U.S. District Court for the Northern District of Illinois entered an Order of Permanent Injunction and Other Equitable Relief, by consent, against John D. Lauer (Lauer) and Clifton Capital Investors L.P. (CCI) enjoining them from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder for misrepresenting and omitting to state material facts to prospective investors and others in a scheme involving the offer and sale of so called "Prime Bank Instruments" for which Lauer received over $4 million of investor funds from the scheme's promoters.  The Permanent Injunction also ordered Lauer and CCI to disgorge $4.853 million plus prejudgment interest within 30 days and found civil penalties appropriate but left the determination of the amount of civil penalties for a future date.  

     The Permanent Injunction contained Findings of Fact and Conclusions of Law against Lauer and CCI.  As part of those findings, the Court found that Lauer, the Director of Risk Management and Benefits for the Chicago Housing Authority (CHA), had invested at least $12.5 million of CHA funds in the Konex Roll Program (Roll Program), a purported "Prime Bank Instrument" trading program.  In connection with that offering, the Court found that Lauer had breached his fiduciary duty to the CHA by failing to disclose the role of his private company, CCI, in the administration of CHA's investment, his receipt from Roll Program promoters of over $4 million and his resulting conflict of interest.  The Court further found that Lauer had made false statements to prospective investors concerning the rate of return the CHA earned and the circumstances under which the CHA invested in the Roll Program.  Moreover, Court found that Lauer had repeatedly lied to federal investigators about his investments in "Prime Bank Instruments," including Commission staff, during the course of its investigation in this matter.   

     The Commission's Complaint filed in that action also charged Konex Holding Corp. (Konex), Lyle E. Neal (Neal), Copol Investments Limited (Copol) and Joseph Polichemi (Polichemi) with violations of the antifraud provisions in connection with the offer and sale of investment contracts in the Roll Program.  In fact, the Roll Program was nothing more than a scheme to defraud investors.  Thus, the Complaint alleged that Neal and Polichemi, through their prospective companies, Konex and Copol, made false and misleading statements regarding the use of CHA proceeds and the risks and returns associated with the investment.

     The Commission brought this action on an emergency basis on June 21, 1994.  On that date, Judge Andersen entered a Temporary Restraining Order against the defendants, and, among other things, froze their assets.  On July 29, 1994, the Court permanently enjoined Konex, Neal, Copol and Polichemi by default.

On August 25, 1994, Judge Andersen entered an Order of Preliminary Injunction and Other Equitable Relief against Lauer and CCI, which the Seventh Circuit affirmed on April 12, 1995.  Discovery continues in this action for purposes of disgorgement and civil penalties.