 UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Securities
Act of 1933
Release No. 8012 / September 26, 2001
Securities
Exchange Act of 1934
Release No. 44855 / September 26, 2001
Administrative
Proceeding
File
No. 3-10587
Administrative
and Cease-and-desist Proceedings Instituted Against
John F. Smart
The
Securities and Exchange Commission ("Commission")
announced that it has instituted public administrative
and cease-and-desist proceedings against John
F. Smart, of Lederach, Pennsylvania. Smart was
the branch manager and sole employee of a branch
of a broker-dealer registered with the Commission,
which was located in his home.
In
the Order Instituting Public Administrative and
Cease-and-Desist Proceedings ("Order"),
the Division of Enforcement alleges that during
several months in mid-1999, Smart engaged in a
fraudulent offering scheme targeted against three
nonprofit and/or charitable institutions (the
"charities"), including a church, a
religious-based family crisis center and a substance
abuse center. Essentially, Smart offered these
charities an opportunity to obtain between $5
million and $9 million each by jointly participating
in an alleged $15 million bond offering. This
offering possessed many of the indicia of a prime
bank scheme, which is widely recognized as a fraudulent
scheme characterized by claims of fantastic profits
which can be obtained from trading non-existent
banking instruments on the international market.
In order to participate in this program, each
charity had to submit a business plan and pay
a $50,000 application fee if accepted into the
program. However, Smart was unable to raise any
funds from these charities.
The
Division of Enforcement further alleges that Smart
told the charities that a European charitable
trust, with $3 billion in assets, raised money
for charities worldwide through the issuance of
"5 year, AA rated" bonds, which were
guaranteed by a top 200 World Bank. Smart told
the charities that the proceeds from the bond
offering would be placed into a trading account
maintained by or on behalf of a European bank.
This European bank could then leverage these funds
at 10 times their face value in credit facilities,
overnight trading and short-term loans in much
the same way that United States banks can leverage
money obtained from the Federal Reserve. By leveraging
these funds, the banks could purportedly earn
interest on a principal amount 10 times greater
than the funds actually possessed. Smart claimed
that the banks, through this leveraging and trading,
could generate enough profits: (i) to pay the
principal amount (i.e. the face value of the bonds)
to the charities; (ii) to repay the bond investors
their entire investment plus a reasonable rate
of return; and (iii) to pay the promoters of the
program a fee equal to 10 percent of the offering.
Based
on the foregoing, the staff allege that Smart
willfully violated and committed or caused violations
of Sections 17(a)(1) and 17(a)(3) of the Securities
Act of 1933 and Section 15(a)(1) of the Securities
Exchange Act of 1934.
A
hearing will be scheduled before an administrative
law judge to determine whether the allegations
contained in the Order are true, to provide Smart
an opportunity to dispute these allegations, and
to determine what sanctions, if any, are appropriate
and in the public interest.
from:
http://www.sec.gov/litigation/admin/33-8012.htm
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