 UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
LITIGATION RELEASE NO. 17281 / December 19, 2001
SECURITIES
AND EXCHANGE COMMISSION v. LYTLE E. FOGELSONG,
THOMAS GREGORY COOK, JAMES H. MALBAFF, and MALBAFF
& COOK, No. 5:01CV00104 (Wilson, C.J.) (U.S.D.C.,
W.D. Va.)
COMMISSION
FILES "PRIME BANK" SECURITIES
FRAUD CASE AGAINST VIRGINIA DEFENDANTS
On
December 19, 2001, the Commission filed a securities
fraud case in the United States District Court
for the Western District of Virginia charging
four defendants from Virginia with promoting fraudulent
"prime bank" investment schemes. The
defendants are Lytle E. Fogelsong of Winchester,
Virginia; Thomas Gregory Cook of Haymarket, Virginia;
James H. Malbaff of Haymarket, Virginia; and Malbaff
& Cook, a Virginia partnership.
The
Commission's complaint alleges that the defendants
collectively raised in excess of $1.1 million
from more than 30 investors by promoting several
fraudulent investments that featured purported
"high-yield" trading programs. According
to the complaint, the programs were represented
to generate returns of as much as 13,000% from
the trading of bank debentures, medium terms notes,
and other instruments resembling the fictitious
"prime bank" securities that have been
the subject of dozens of Commission enforcement
actions over the past decade. The Commission charges
that defendant Fogelsong skimmed at least $70,000
of the investors' funds for his own personal use,
and that most of the remaining investor funds
were misappropriated by the remote operators of
the fraudulent programs in Utah and California.
The Commission further alleges that in soliciting
investors, Fogelsong, Malbaff, and Cook each made
numerous material misrepresentations concerning,
among other things, the views of the SEC, the
Federal Reserve, and other agencies regarding
these investment programs; their own due diligence;
the safety of the programs; and the use of investor
funds. According to the complaint, even after
they learned that their investors' funds had been
misappropriated by remote operators of the programs,
the defendants joined together to lull their investors
into inaction rather than disclosing the truth
to them.
The
Commission's complaint charges each of the defendants
with securities fraud in violation of Section
17(a) of the Securities Act of 1933, Section 10(b)
of the Securities Exchange Act of 1934 (the "Exchange
Act"), and Exchange Act Rule 10b-5, and charges
Fogelsong, Cook, and Malbaff with acting as unregistered
brokers in violation of Exchange Act Section 15(a).
The Commission is seeking injunctions, disgorgement
of ill-gotten gains (with interest), and civil
penalties against all defendants.
In
a related matter, the United States Attorney's
Office for the Western District of Virginia announced
the indictment and arrest of Fogelsong on 25 criminal
counts including securities fraud, wire fraud,
mail fraud, money laundering, and obstruction
of justice in connection with his role in the
same investment schemes. United States v. Lytle
E. Fogelsong, No. 1:01CR00076 (W.D. Va.).
The
Commission wishes to thank the United States Attorney's
Office for the Western District of Virginia, the
Federal Bureau of Investigation, and the Virginia
State Corporation Commission for their assistance
in connection with this matter.
The
Commission's investigation is continuing.
*
* * *
This
case is part of the SEC's continuing effort to
combat prime bank fraud and to alert the public
to the risks posed by these phony instruments.
The risks of this type of fraud and warnings about
how to avoid it are spelled out in the Interagency
Advisory: Warning Concerning "Prime Bank"
Notes, Guarantees, and Letters of Credit and Similar
Financial Instruments (October 21, 1993), and
other information which is available through the
SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml.
SEC Complaint
in this matter.
from: http://www.sec.gov/litigation/litreleases/lr17281.htm
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