SECURITIES
AND EXCHANGE COMMISSION
Litigation Release
No. 16207 / July 12, 1999
Securities and Exchange Commission v. Stewart,
et al., Civil Action No. 98 CIV 2636 (S.D.N.Y.)
Default Judgments Entered Against Four Defendants
in Prime Bank Scheme
The Securities and Exchange Commission announced
that the Honorable Loretta A. Preska of the United
States District Court of the Southern District
of New York has entered a final judgment against
four defendants in a "prime bank" scheme.
The defendants are Salim El Hage and three entities
he controlled: Eastland American Bank Limited,
Foreign Trade Bank, and Mecis Insurance and Reinsurance
Company (the "El Hage defendants").
The El Hage defendants, along with others, fraudulently
obtained more than $1.7 million from at least
three individuals by offering and selling securities
in the form of participations in investment programs
purportedly to trade prime bank instruments. The
El Hage defendants played a key role in the prime
bank scheme by posing as financial intermediaries
who could supply so-called credit facilities that
would enable the investors to trade multi-million
dollar bank instruments. The trading was to result
in spectacular profits for investors--returns
of ten to fifty times their initial investments
in two months to two years--at no risk. The investment
programs were scams, the instruments themselves
bogus. Instead of using the money as promised,
the promoters of the scheme misappropriated the
investors' funds for their own benefit, transferring
portions of the money to at least one bank account
under the control of the El Hage defendants.
When it was advised that the defendants had abandoned
their last known place of operation in Paris,
France, the Court authorized the Commission to
serve the defendants by publication through the
Wall Street Journal (European Edition) and the
International Herald Tribune. After their failure
to respond, notwithstanding their foreign location,
the Court asserted personal jurisdiction over
these defendants based on their conduct in the
U.S. and the impact of that conduct on U.S. citizens.
The judgment was entered by default and permanently
enjoins each of the El Hage defendants from violating
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. In addition, the
defendants were held jointly and severally liable
to pay $799,873 of disgorgement and $498,073 of
prejudgment interest. The Court also imposed maximum
statutory penalties of $396,667 for El Hage and
$500,000 for each of his entities.
Litigation continues as to the remaining defendants
and relief defendants.
http://www.sec.gov/litigation/litreleases/lr16207.htm
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