San Bernardino County hosts the military's most cherished clubhouse, Ft. Irwin, and several other bases, active and closed. The county population is rich in military denizens, their derelicts, offspring, misfits and buffs. With the consequent prevalence of the classic sociopathy found in these people, predation, exploitation, corruption and virtual tyranny have spread throughout our courts, law enforcement and government. Discuss the disgraceful prison and military industrial complexes here.
2004-12-01
Ex-County Sheriff Gets Probation, Fine for Gun Theft
A San Bernardino County judge on Tuesday sentenced former Sheriff Floyd Tidwell to three years' probation and fined him $10,000 for concealing guns that he took from evidence rooms while in office, ruling against a prosecutor's request to send the ex-lawman to prison. Tidwell took 523 guns during his tenure as sheriff, which ended in 1991, and in May pleaded guilty to four felony counts of concealing stolen property related to the thefts. Prosecutors agreed to reduce those charges to misdemeanors and not seek a prison sentence if Tidwell cooperated with investigators to recover the weapons. More than 100 guns were returned. Prosecutors could not charge... ( gunpolicy.org )
2004-11-04
Former Sheriff Says He’d Face Danger if Jailed
By Lance Pugmire
November 04, 2004 in print edition B-1
Note This article includes corrections to the original version.
From inside his High Desert ranch home, decorated with steer horns and well-stocked with firearms, former San Bernardino County Sheriff Floyd Tidwell on Wednesday said that his safety may be at risk if prosecutors pursue felony gun charges against him.
If the felonies stick, Tidwell could face jail time and would be stripped of his right to bear arms – both of which Tidwell says would put him in grave danger.
“I’ve put a lot of people away,” Tidwell, 74, said.
Tidwell, sheriff from 1983 to 1991, pleaded guilty in May to four felony counts of concealing stolen property for stealing an estimated 523 guns from evidence rooms. He agreed to a $10,000 fine, and prosecutors agreed to reduce the felony charges to misdemeanors if Tidwell cooperated with law enforcement in searching for the missing guns.
San Bernardino County district attorney officials say Tidwell did not keep his end of the bargain. Tidwell insists he did. Today, Superior Court Judge J. Michael Welch is scheduled to decide who’s right.
“I’m not guilty of anything, dang it,” Tidwell said. “I’ve turned in every gun I had. The others have either been destroyed or distributed, and I gave a list of those [distributed guns] to the Sheriff’s Department, and they said they’d contact those people. What else can I do?”
Prosecutors allege Tidwell stole the guns while he was in office, keeping some to beef up his private collection and handing out others as gifts to friends and volunteer reserve deputies.
Tidwell turned over 89 of the missing guns before striking the plea bargain, and he’s provided 30 to 40 more since May, prosecutors said. The judge’s decision is critical to Tidwell because he wants to remain well-armed, said his attorney, David Call.
“[Tidwell] knows you can’t keep firearms if you’re convicted of a felony,” Call said. “He wants to be able to protect himself and his family. He lives in the middle of nowhere.”
With a picturesque view of the snow-capped San Gabriel Mountains from his home, the retired Tidwell said he spends his time caring for his ailing wife, Janet, and that he picked the remote desert location for his home to ensure the couple could spend their final years quietly.
“[Tidwell] has people who hate him,” Call said.
“There are people out there who would love to kill the ex-sheriff, even if it’s a gang member doing it for no other reason than to make his bones
However, with nearly 400 of the 523 missing guns still unaccounted for, sources in the district attorney’s office say Tidwell has not cooperated enough.
Prosecutor Cheryl Kersey is expected to argue that the convictions should remain felonies because the missing weapons remain a threat to public safety.
“Who wants a felony? Not me,” Tidwell said. “I served the county 40 years. I’ve never been arrested in my life. There’s no reason for all this.”
Call said Tidwell did not deserve jail time.
“How would you like to be Colonel Sanders and be put in the chicken coop?” Call said. “He doesn’t need to be punished any more than he has. His pride is shattered. His wife is terribly ill. And the mistress of his life, the Sheriff’s Department, has a black eye because of his actions.”
Tidwell’s legal trouble began in June 2003, when detectives conducted an investigation into alleged bail solicitation of jail inmates and searched the homes of Tidwell’s sons, Danial and Steve. Detectives found 24 guns at the homes, and the Tidwell brothers told detectives their father either gave them the guns or was aware they had stolen some.
Described by his daughter as an avid gun collector, Floyd Tidwell turned in the 89 guns valued at an estimated $25,000, including three illegal weapons, last November.
Tidwell says that even before his sons’ homes were searched, he contacted former Sheriff Dick Williams and current Sheriff Gary Penrod to inform them of his possession of the weapons.
A spokeswoman for Penrod said Tidwell was told to either arrange for the guns to be picked up or to bring them in personally. Neither happened, the spokeswoman said.
“They’ve had my phone number and my address for 55 years – they’ve known how to get a hold of me,” Tidwell said.
For the record
Former sheriff – An article in Thursday’s California section said former San Bernardino County Sheriff Floyd Tidwell could be jailed for concealing stolen guns. As a condition of Tidwell’s plea bargain in May, the San Bernardino County district attorney agreed to not jail him. ↩ 2004-10-29
Former Interpol Chief Calls Prohibition "Obsolete and Dangerous"
In an op-ed piece Wednesday in the Paris newspaper Le Monde, Raymond Kendall, the former chief of the international law enforcement agency Interpol, called drug prohibition "obsolete and dangerous" and said its continuation represented a missed opportunity for reform. Prohibition has failed to protect the world from drugs, he said, and Europe must take the lead in reforming the drug laws, particularly at the United Nations General Assembly Special Session on drugs in Vienna in 2008.
"Although I am not personally in favor of the legalization of drugs, the general feeling is that the opportunity has been missed to profoundly reform a dangerous and obsolete legal framework and replace it with a modern and effective policy," wrote Kendall, who headed the international police body from 1985 to 2000 and who remains its honorary head.
Drug prohibition simply does not work, Kendall pointed out. Despite decades of suppression efforts, "cannabis has become a common substance with high rates of consumption, sometimes more accessible than alcohol," he wrote, while the distribution of drugs like cocaine and ecstasy is steadily increasing despite the billions of dollars poured into the drug war.
Prohibitionist drug policies are no match for policies based on harm reduction, the former top cop argued, citing a recent British study that found every dollar spent on health care would save $3 that would have been spent in the criminal justice system. "With regards to heroin, the medicalization of dependent drug users and the prescription of pharmaceutical opiates have led to an 80% decrease in overdose deaths, noticeably limited the spread of epidemics and sharply cut the delinquency of drug addicts," Kendall noted. "The number of heroin addicts has also significantly decreased due to the recent advances in realistic detoxification processes, and because illegal drug supply has moved towards a 'medicalized' market."
Kendall regretted, however, that innovative harm reduction policies have too often been attacked by the international institutions that administer the US-influenced and "obsolete" UN conventions on drugs. Europe must take the lead in reforming the global prohibitionist regime in Vienna, Kendall concluded.
"Although I am not personally in favor of the legalization of drugs, the general feeling is that the opportunity has been missed to profoundly reform a dangerous and obsolete legal framework and replace it with a modern and effective policy," wrote Kendall, who headed the international police body from 1985 to 2000 and who remains its honorary head.
Drug prohibition simply does not work, Kendall pointed out. Despite decades of suppression efforts, "cannabis has become a common substance with high rates of consumption, sometimes more accessible than alcohol," he wrote, while the distribution of drugs like cocaine and ecstasy is steadily increasing despite the billions of dollars poured into the drug war.
Prohibitionist drug policies are no match for policies based on harm reduction, the former top cop argued, citing a recent British study that found every dollar spent on health care would save $3 that would have been spent in the criminal justice system. "With regards to heroin, the medicalization of dependent drug users and the prescription of pharmaceutical opiates have led to an 80% decrease in overdose deaths, noticeably limited the spread of epidemics and sharply cut the delinquency of drug addicts," Kendall noted. "The number of heroin addicts has also significantly decreased due to the recent advances in realistic detoxification processes, and because illegal drug supply has moved towards a 'medicalized' market."
Kendall regretted, however, that innovative harm reduction policies have too often been attacked by the international institutions that administer the US-influenced and "obsolete" UN conventions on drugs. Europe must take the lead in reforming the global prohibitionist regime in Vienna, Kendall concluded.
2004-10-22
Suit details Heath pitch to investors
By DEVONA WELLS / The Press-Enterprise
A lawsuit filed this week sheds new light on the inner workings of D.W. Heath &
Associates, providing details of how investors say those running the company used every
advantage to cheat them of their nest eggs.
Believed to be the first civil lawsuit filed in the Heath matter, it renews accusations of a
massive Ponzi scheme that drew in 1,848 people, including many who signed over their
savings and retirement accounts. The suit seeks at least $10.8 million and was filed
Wednesday in San Diego County Superior Court by 47 investors - half of them from the
Inland Empire, according to attorney Patricia Meyer.
Named in the suit are Daniel Heath, 47, of Chino Hills; Larre Schlarmann, 46, of
Carlsbad; and Denis O'Brien, 50, of Yorba Linda. All three remain in Riverside County
jail after being arrested in July. They are charged with numerous counts of securities
fraud and grand theft. John Heath, 78, Daniel Heath's father, also is in custody but was
not named as a defendant in the civil suit.
All four have pleaded not guilty to the charges. If convicted, they face sentences ranging
from 61 years to 200 years, according to sentencing guidelines provided by deputy
district attorney Michael Silverman.
Wednesday's suit says Heath & Associates, with offices in Temecula and Hemet, brought
in at least $178 million from mostly seniors in a scam that played up church and family
ties while the defendants paid themselves generous salaries. Investors want the $10.8
million they put into Heath & Associates returned, plus unspecified damages.
Court-appointed receiver Robb Evans, charged with recovering company assets and
returning money, has said investor losses will be significant.
Meyer said she's not sure where money for her clients would come from but she'll be
looking for others involved in the scheme, which the suit said involved the payment of
early investors with money from later ones.
"We won't know until we have the full story," she said.
The Heath scheme originated in mistakes made by the defendants, who lost money on
many of the investments they funded with money from Heath investors, the suit says.
Attorneys for Schlarmann, O'Brien and Heath could not be reached Thursday.
Heath & Associates got its start in 1993, according to the suit, and misled investors until
April 2004 on several fronts.
The suit says:
Heath told investors he had never invested with a failed company, though several are out
of business or in the red.
Commissions of 10 percent were hidden from investors.
Neither Heath nor Schlarmann disclosed a 1998 order from the state Department of
Corporations telling them to stop selling securities.
Dawn Haggerty of Canyon Lake said she's given up on the receiver returning any of the
$100,000 she and her husband invested in Heath & Associates. Joining the civil suit, she
figured, couldn't hurt.
"If we got even a quarter back of what we invested, it's better than nothing," she said.
Heath & Associates pursued investors at least 47 years old with minimum incomes of
$50,000, according to the suit, luring them with promises of up to 9 percent interest
yearly.
Testimonials were part of the pitch, from a pastor to clients who attested to Heath's good
character, the suit says. The front of the Heath & Associates brochure reportedly included
this quote from Methodist founder John Wesley: "Do all the good you can, By all the
means you can, In all the ways you can."
To seal the deal, Heath, who kept a Bible on his desk, and O'Brien would show off
pictures of their families and quote scripture, the suit says. O'Brien, however, was found
guilty two years ago of misdemeanor charges of annoying or molesting a child and
indecent exposure, according to the suit and Orange County Superior Court records.
O'Brien was appealing the conviction before being jailed in July. His attorney in that case
did not return previous calls seeking comment on the matter.
After O'Brien's indecent exposure and molestation convictions in February 2002, he was
sentenced to 30 days in jail and five years probation, said Mark Macaulay, Orange
County district attorney's spokesman. Being convicted of such crimes would require
O'Brien to register as a sex offender, Macaulay said.
"They tried to portray themselves to a lot of senior citizens as good wholesome
Americans who were church-going people. That was a really important factor to a lot of
my clients. They feel they've been betrayed as well as defrauded," attorney Meyer said.
A lawsuit filed this week sheds new light on the inner workings of D.W. Heath &
Associates, providing details of how investors say those running the company used every
advantage to cheat them of their nest eggs.
Believed to be the first civil lawsuit filed in the Heath matter, it renews accusations of a
massive Ponzi scheme that drew in 1,848 people, including many who signed over their
savings and retirement accounts. The suit seeks at least $10.8 million and was filed
Wednesday in San Diego County Superior Court by 47 investors - half of them from the
Inland Empire, according to attorney Patricia Meyer.
Named in the suit are Daniel Heath, 47, of Chino Hills; Larre Schlarmann, 46, of
Carlsbad; and Denis O'Brien, 50, of Yorba Linda. All three remain in Riverside County
jail after being arrested in July. They are charged with numerous counts of securities
fraud and grand theft. John Heath, 78, Daniel Heath's father, also is in custody but was
not named as a defendant in the civil suit.
All four have pleaded not guilty to the charges. If convicted, they face sentences ranging
from 61 years to 200 years, according to sentencing guidelines provided by deputy
district attorney Michael Silverman.
Wednesday's suit says Heath & Associates, with offices in Temecula and Hemet, brought
in at least $178 million from mostly seniors in a scam that played up church and family
ties while the defendants paid themselves generous salaries. Investors want the $10.8
million they put into Heath & Associates returned, plus unspecified damages.
Court-appointed receiver Robb Evans, charged with recovering company assets and
returning money, has said investor losses will be significant.
Meyer said she's not sure where money for her clients would come from but she'll be
looking for others involved in the scheme, which the suit said involved the payment of
early investors with money from later ones.
"We won't know until we have the full story," she said.
The Heath scheme originated in mistakes made by the defendants, who lost money on
many of the investments they funded with money from Heath investors, the suit says.
Attorneys for Schlarmann, O'Brien and Heath could not be reached Thursday.
Heath & Associates got its start in 1993, according to the suit, and misled investors until
April 2004 on several fronts.
The suit says:
Heath told investors he had never invested with a failed company, though several are out
of business or in the red.
Commissions of 10 percent were hidden from investors.
Neither Heath nor Schlarmann disclosed a 1998 order from the state Department of
Corporations telling them to stop selling securities.
Dawn Haggerty of Canyon Lake said she's given up on the receiver returning any of the
$100,000 she and her husband invested in Heath & Associates. Joining the civil suit, she
figured, couldn't hurt.
"If we got even a quarter back of what we invested, it's better than nothing," she said.
Heath & Associates pursued investors at least 47 years old with minimum incomes of
$50,000, according to the suit, luring them with promises of up to 9 percent interest
yearly.
Testimonials were part of the pitch, from a pastor to clients who attested to Heath's good
character, the suit says. The front of the Heath & Associates brochure reportedly included
this quote from Methodist founder John Wesley: "Do all the good you can, By all the
means you can, In all the ways you can."
To seal the deal, Heath, who kept a Bible on his desk, and O'Brien would show off
pictures of their families and quote scripture, the suit says. O'Brien, however, was found
guilty two years ago of misdemeanor charges of annoying or molesting a child and
indecent exposure, according to the suit and Orange County Superior Court records.
O'Brien was appealing the conviction before being jailed in July. His attorney in that case
did not return previous calls seeking comment on the matter.
After O'Brien's indecent exposure and molestation convictions in February 2002, he was
sentenced to 30 days in jail and five years probation, said Mark Macaulay, Orange
County district attorney's spokesman. Being convicted of such crimes would require
O'Brien to register as a sex offender, Macaulay said.
"They tried to portray themselves to a lot of senior citizens as good wholesome
Americans who were church-going people. That was a really important factor to a lot of
my clients. They feel they've been betrayed as well as defrauded," attorney Meyer said.
2004-07-09
2 DEFENDANTS NAMED IN SEC ACTION ARRESTED BY RIVERSIDE CO. D A'S OFFICE FOR SECURITIES FRAUD SCHEME TARGETING ELDERLY INVESTORS IN SOUTHERN CALIFORNIA
U.S. Securities and Exchange Commission
Litigation Release No. 18777 / July 9, 2004
TWO DEFENDANTS NAMED IN SEC ACTION ARRESTED BY RIVERSIDE COUNTY DISTRICT ATTORNEY'S OFFICE FOR SECURITIES FRAUD SCHEME TARGETING ELDERLY INVESTORS IN SOUTHERN CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
The Securities and Exchange Commission ("Commission") announced that on July 1, the Riverside County District Attorney's Office ("Riverside DA") arrested four defendants in an ongoing multi-million dollar securities fraud scheme. Arrested were Daniel William Heath, 47, of Chino Hills, his father, John William Heath, 77, of Covina, Denis Timothy O'Brien, 50, of Yorba Linda, and Larre Jaye Schlarmann, 46, of Carlsbad. All four men have been charged by the Riverside DA with 233 felony counts, including selling unqualified securities, selling securities by misrepresentation, violating a court order to desist and refrain from selling securities, elder abuse, grand theft, burglary, and money laundering. All four men have been booked and are in custody. Bail is set at $144 million for each individual. Two of the men arrested, Daniel Heath and O'Brien, were named in an emergency civil injunctive action filed by the Commission on April 28, 2004 in federal court in Los Angeles. The Commission's complaint alleges that Daniel Heath and O'Brien lured elderly victims to workshops with the promise of a free lunch and then bilked them out of their retirement money by purporting to sell them safe, guaranteed notes.
According to the Riverside DA's criminal complaint, the men operated D.W. Heath & Associates, Inc., Private Capital Management, Inc. ("PCM"), Private Collateral Management, Inc., and the PCM Fixed Income Fund I, LLC ("PCM Fund"), as well as other investment entities with offices in Hemet, Brea, Pasadena, and Big Bear. The defendants raised at least $144 million from hundreds of elderly investors. The Riverside County DA conducted the arrests and executed criminal search warrants at the homes of Schlarmann and John Heath. The Riverside DA had previously executed criminal search warrants at the offices of Heath & Associates offices and at Daniel Heath's home at the time the Commission filed its complaint, and shortly thereafter, at O'Brien's home. The Riverside County DA also sought asset freezes against defendants Schlarmann, John Heath, and O'Brien.
The Commission's complaint alleges that Daniel Heath, O'Brien, Heath & Associates, PCM, Private Collateral Management, Inc., and the PCM Fund fraudulently induced at least 803 elderly investors nationwide to invest in notes in PCM and the PCM Fund ("PCM notes") that purportedly paid a "guaranteed" return of 5.5% to 8% per year. The defendants claimed that investor funds would be used to make secured loans to businesses. The defendants also represented that independent IRA administrators conducted "due diligence" on the PCM notes, and that investors would be repaid their principal at maturity, or that they could redeem all or part of their investment before maturity, subject to a penalty. Finally, the defendants claimed that PCM and the PCM Fund were California entities. According to the Commission's complaint, these representations were false. The Complaint alleged that the loans were secured. Further, the PCM notes were not liquid because the defendants failed to promptly return investor funds. According to the SEC complaint, some investors had to threaten to file, or actually file, lawsuits against the defendants to get back their money. Nor was it true that IRA administrators conducted due diligence. Finally, there was no record that either PCM or the PCM Fund was a California legal entity.
In its lawsuit, the Commission obtained an order freezing the assets of all defendants (except O'Brien), an accounting, an order preventing destruction of documents, an order expediting discovery, and an order temporarily enjoining all of the defendants from future violations of the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. At a hearing on May 3, 2004, the court appointed Robb Evans and Associates as temporary receiver over Heath & Associates, PCM, Private Collateral Management, Inc., and the PCM Fund. On May 6, 2004, the court entered preliminary injunctions against all the defendants. On May 18, 2004, the court appointed Robb Evan and Associates as permanent receiver.
In its action, the Commission is seeking permanent injunctions, and other relief, including disgorgement and civil penalties against all defendants.
See also: L.R. 18689 / May 3, 2004
http://www.sec.gov/litigation/litreleases/lr18777.htm
Litigation Release No. 18777 / July 9, 2004
TWO DEFENDANTS NAMED IN SEC ACTION ARRESTED BY RIVERSIDE COUNTY DISTRICT ATTORNEY'S OFFICE FOR SECURITIES FRAUD SCHEME TARGETING ELDERLY INVESTORS IN SOUTHERN CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
The Securities and Exchange Commission ("Commission") announced that on July 1, the Riverside County District Attorney's Office ("Riverside DA") arrested four defendants in an ongoing multi-million dollar securities fraud scheme. Arrested were Daniel William Heath, 47, of Chino Hills, his father, John William Heath, 77, of Covina, Denis Timothy O'Brien, 50, of Yorba Linda, and Larre Jaye Schlarmann, 46, of Carlsbad. All four men have been charged by the Riverside DA with 233 felony counts, including selling unqualified securities, selling securities by misrepresentation, violating a court order to desist and refrain from selling securities, elder abuse, grand theft, burglary, and money laundering. All four men have been booked and are in custody. Bail is set at $144 million for each individual. Two of the men arrested, Daniel Heath and O'Brien, were named in an emergency civil injunctive action filed by the Commission on April 28, 2004 in federal court in Los Angeles. The Commission's complaint alleges that Daniel Heath and O'Brien lured elderly victims to workshops with the promise of a free lunch and then bilked them out of their retirement money by purporting to sell them safe, guaranteed notes.
According to the Riverside DA's criminal complaint, the men operated D.W. Heath & Associates, Inc., Private Capital Management, Inc. ("PCM"), Private Collateral Management, Inc., and the PCM Fixed Income Fund I, LLC ("PCM Fund"), as well as other investment entities with offices in Hemet, Brea, Pasadena, and Big Bear. The defendants raised at least $144 million from hundreds of elderly investors. The Riverside County DA conducted the arrests and executed criminal search warrants at the homes of Schlarmann and John Heath. The Riverside DA had previously executed criminal search warrants at the offices of Heath & Associates offices and at Daniel Heath's home at the time the Commission filed its complaint, and shortly thereafter, at O'Brien's home. The Riverside County DA also sought asset freezes against defendants Schlarmann, John Heath, and O'Brien.
The Commission's complaint alleges that Daniel Heath, O'Brien, Heath & Associates, PCM, Private Collateral Management, Inc., and the PCM Fund fraudulently induced at least 803 elderly investors nationwide to invest in notes in PCM and the PCM Fund ("PCM notes") that purportedly paid a "guaranteed" return of 5.5% to 8% per year. The defendants claimed that investor funds would be used to make secured loans to businesses. The defendants also represented that independent IRA administrators conducted "due diligence" on the PCM notes, and that investors would be repaid their principal at maturity, or that they could redeem all or part of their investment before maturity, subject to a penalty. Finally, the defendants claimed that PCM and the PCM Fund were California entities. According to the Commission's complaint, these representations were false. The Complaint alleged that the loans were secured. Further, the PCM notes were not liquid because the defendants failed to promptly return investor funds. According to the SEC complaint, some investors had to threaten to file, or actually file, lawsuits against the defendants to get back their money. Nor was it true that IRA administrators conducted due diligence. Finally, there was no record that either PCM or the PCM Fund was a California legal entity.
In its lawsuit, the Commission obtained an order freezing the assets of all defendants (except O'Brien), an accounting, an order preventing destruction of documents, an order expediting discovery, and an order temporarily enjoining all of the defendants from future violations of the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. At a hearing on May 3, 2004, the court appointed Robb Evans and Associates as temporary receiver over Heath & Associates, PCM, Private Collateral Management, Inc., and the PCM Fund. On May 6, 2004, the court entered preliminary injunctions against all the defendants. On May 18, 2004, the court appointed Robb Evan and Associates as permanent receiver.
In its action, the Commission is seeking permanent injunctions, and other relief, including disgorgement and civil penalties against all defendants.
See also: L.R. 18689 / May 3, 2004
http://www.sec.gov/litigation/litreleases/lr18777.htm
2004-05-24
PERMANENT RECEIVER APPOINTED IN $144 MILLION PONZI SCHEME TARGETED AT ELDERLY INVESTORS IN SOUTHERN CALIFORNIA
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18724 / May 24, 2004
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
PERMANENT RECEIVER APPOINTED IN $144 MILLION PONZI SCHEME TARGETED AT ELDERLY INVESTORS IN SOUTHERN CALIFORNIA
The Securities and Exchange Commission announced that on May 19, 2004, the United States District Court for the Central District of California appointed Robb Evans and Associates, LLC as the permanent receiver over four Southern California companies alleged to have perpetrated a $144 million Ponzi scheme targeting the elderly. In a federal court complaint filed on April 28, 2004, the Commission alleged that the four receivership entities, D.W. Heath & Associates, Inc., Private Capital Management, Inc. ("PCM"), Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC ("PCM Fund"), and two individuals, Daniel William Heath, 47, of Chino Hills, and Denis Timothy O'Brien, 49, of Yorba Linda, fraudulently induced at least 803 elderly investors to invest in "secured" notes that paid a "guaranteed" return of 5.5% to 8% per year, and raised at least $60 million. The defendants agreed to the entry of the order appointing the permanent receiver over the entities.
In his first report to the court filed on May 14, 2004, the receiver stated that from July 1993 through March 31, 2004, approximately $144.8 million was raised from investors through PCM, and of that amount, approximately $39.6 million in principal and interest was returned to investors. According to the receiver's report, over the life of the company, PCM suffered a net loss of about $41.8 million and earned only $1 million in total income. The receiver concluded that the payments to investors could have only come from the money invested by other investors. Using funds from new investors to make principal and interest payments to existing investors without disclosing such a practice constitutes a Ponzi scheme.
The Commission's complaint alleged that the defendants fraudulently induced at least 803 elderly investors nationwide to invest in PCM notes that purportedly paid a "guaranteed" return of 5.5% to 8% per year. The defendants claimed that investor funds would be used to make secured loans to businesses. The defendants also represented that independent IRA administrators conducted "due diligence" on the PCM Notes and that either investors will be repaid their principal at maturity, or they may redeem all or part of their investment before maturity, subject to a 10% penalty. Finally, the defendants claimed that PCM and the PCM Fund are California entities.
According to the complaint, these representations are false. There is no evidence that there are any secured loans. The PCM Notes also are not liquid because the defendants have failed to promptly return investor funds. The complaint further alleges that some investors have had to threaten to file, or actually filed, lawsuits against the defendants to get back their money. Nor is it true that IRA administrators have conducted due diligence. Finally, there is no record that either PCM or the PCM Fund are California legal entities.
On May 6, 2004, the defendants consented to the entry of a preliminary injunction enjoining them from future violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The defendants also consented to the entry of orders freezing their assets (except against O'Brien), prohibiting the destruction of documents, requiring accountings, and expediting discovery. The Commission also seeks permanent injunctions and other relief, including disgorgement and civil penalties, against all defendants.
http://www.sec.gov/litigation/litreleases/lr18724.htm
Litigation Release No. 18724 / May 24, 2004
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
PERMANENT RECEIVER APPOINTED IN $144 MILLION PONZI SCHEME TARGETED AT ELDERLY INVESTORS IN SOUTHERN CALIFORNIA
The Securities and Exchange Commission announced that on May 19, 2004, the United States District Court for the Central District of California appointed Robb Evans and Associates, LLC as the permanent receiver over four Southern California companies alleged to have perpetrated a $144 million Ponzi scheme targeting the elderly. In a federal court complaint filed on April 28, 2004, the Commission alleged that the four receivership entities, D.W. Heath & Associates, Inc., Private Capital Management, Inc. ("PCM"), Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC ("PCM Fund"), and two individuals, Daniel William Heath, 47, of Chino Hills, and Denis Timothy O'Brien, 49, of Yorba Linda, fraudulently induced at least 803 elderly investors to invest in "secured" notes that paid a "guaranteed" return of 5.5% to 8% per year, and raised at least $60 million. The defendants agreed to the entry of the order appointing the permanent receiver over the entities.
In his first report to the court filed on May 14, 2004, the receiver stated that from July 1993 through March 31, 2004, approximately $144.8 million was raised from investors through PCM, and of that amount, approximately $39.6 million in principal and interest was returned to investors. According to the receiver's report, over the life of the company, PCM suffered a net loss of about $41.8 million and earned only $1 million in total income. The receiver concluded that the payments to investors could have only come from the money invested by other investors. Using funds from new investors to make principal and interest payments to existing investors without disclosing such a practice constitutes a Ponzi scheme.
The Commission's complaint alleged that the defendants fraudulently induced at least 803 elderly investors nationwide to invest in PCM notes that purportedly paid a "guaranteed" return of 5.5% to 8% per year. The defendants claimed that investor funds would be used to make secured loans to businesses. The defendants also represented that independent IRA administrators conducted "due diligence" on the PCM Notes and that either investors will be repaid their principal at maturity, or they may redeem all or part of their investment before maturity, subject to a 10% penalty. Finally, the defendants claimed that PCM and the PCM Fund are California entities.
According to the complaint, these representations are false. There is no evidence that there are any secured loans. The PCM Notes also are not liquid because the defendants have failed to promptly return investor funds. The complaint further alleges that some investors have had to threaten to file, or actually filed, lawsuits against the defendants to get back their money. Nor is it true that IRA administrators have conducted due diligence. Finally, there is no record that either PCM or the PCM Fund are California legal entities.
On May 6, 2004, the defendants consented to the entry of a preliminary injunction enjoining them from future violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The defendants also consented to the entry of orders freezing their assets (except against O'Brien), prohibiting the destruction of documents, requiring accountings, and expediting discovery. The Commission also seeks permanent injunctions and other relief, including disgorgement and civil penalties, against all defendants.
http://www.sec.gov/litigation/litreleases/lr18724.htm
2004-05-12
Missing Weapons Are Seen as a Threat
By Lance Pugmire
May 12, 2004 in print edition B-5
The hundreds of guns that former San Bernardino County Sheriff Floyd Tidwell allegedly took from evidence rooms and then handed out to family and friends are a “huge public safety concern” because authorities have no way of knowing who has the unregistered firearms, a prosecutor said Tuesday.
Tidwell, who allegedly took at least 523 guns while he served as sheriff from 1983 to 1991, pleaded guilty Monday to four felony counts of concealing stolen property.
Deputy Dist. Atty. Cheryl Kersey said that investigators were scrambling to recover the weapons and that it was believed that more than 400 of the unregistered guns – many seized from shootings, drug raids, suicides and other crime scenes – were still missing.
“The more guns out in the community that we aren’t aware of, the more concern we have for the community,” Kersey said. “Imagine the nightmare situation of Floyd Tidwell giving some guns to his buddy whose home is burglarized, with those guns then ending up in the hands of street gangs. All of these [missing] weapons are dangerous.”
Tidwell’s attorney dismissed those concerns, saying Tidwell took far fewer weapons than the prosecutor has alleged and that he gave away many of the illicit weapons to law enforcement colleagues.
“How many of these people with these guns have committed crimes? I don’t know of any,” said his attorney, David Call. Tidwell “wasn’t stupid. He wasn’t handing out guns to the Hells Angels.”
On Tuesday, a spokeswoman for the current county sheriff, Gary Penrod, said Tidwell called Penrod “about six or seven years ago and said he had guns that belonged to the department and wanted to give them back.”
Penrod told Tidwell he would either arrange for the guns to be picked up or that Tidwell could drop them off. The guns were never returned, said sheriff’s spokeswoman Cindy Beavers. Penrod “said he didn’t follow up on the discussion, that he assumed it was a small number of guns that were department-issued,” Beavers said.
2004-05-11
Ex-Sheriff Admits Guilt on Stolen Property Charges
By Lance Pugmire
May 11, 2004 in print edition B-1
Floyd Tidwell, the former sheriff of San Bernardino County, pleaded guilty Monday to four felony counts of concealing stolen property as investigators said he took at least 523 guns from evidence rooms during his eight-year tenure.
During his terms, from 1983 to 1991, Tidwell would walk through evidence rooms “as if shopping, to take his pick of weapons,” one sheriff’s official said. Among the weapons was a military M-2 carbine, a fully automatic assault weapon banned under state and federal gun control laws.
Under a plea agreement with the San Bernardino County district attorney’s office, Tidwell will pay a $10,000 fine and cooperate with investigators who are trying to recover the firearms. He will not serve any time in jail.
“Incarceration was never an option,” said Assistant Dist. Atty. Michael Risley. “He’s 74. He did serve the people well in many respects for many years. We wanted him to acknowledge his wrongdoing and to seek his cooperation in correcting this matter.”
Under state law, confiscated firearms must be returned to their owners, sold at public auction by the county or used for approved law enforcement purposes, such as target practice, Risley said.
“What you can’t do is take them,” Risley said.
Tidwell stashed boxes of guns in his garage in Phelan and would give them away to family and friends, his daughter-in-law told investigators.
Tidwell accepted the plea agreement to limit the stress of a trial on his ailing wife, according to his attorney, David Call.
“If I win a jury trial, but the result is his wife’s funeral, how do I win that?” Call said. “This was an opportunity for the sheriff to stand up and end this sorry mess.”
Call said Tidwell didn’t believe his handling of the guns was illegal, and that the number of guns Tidwell is accused of taking might be inaccurate.
“It used to be common practice for law enforcement officers to keep their guns,” Call said after the hearing. “This [case] is about different times, different eras and closed chapters.”
Tidwell first came under suspicion on June 25, when investigators with the San Bernardino County Sheriff’s Department executed search warrants at the homes of the former sheriff’s two sons, Danial and Steve Tidwell. The brothers were under investigation for illegally soliciting business for their Fontana-based bail bond company.
During the searches, detectives found 24 guns at the brothers’ homes in San Bernardino and Phelan. The brothers, both former deputies, told the investigators that their father gave them most of the firearms while he was sheriff.
“Guess what?” Steve said to investigators as they searched his home, according to a district attorney’s memorandum. “Those were given to me by Floyd Tidwell, so you might want to talk to him sometime. You know how we get those, don’t you?”
Danial Tidwell allegedly told a sergeant that he stole one of the guns, an illegal 9-millimeter machine pistol, from a suspect while he was a deputy. Danial Tidwell said that “Floyd knew about the stolen department weapons and told Danial not to worry about it,” prosecutors alleged in court records.
Prosecutors considered charging the former sheriff with theft and embezzlement, but under the statute of limitations, those charges must be filed within three years of the alleged crime. Instead, Tidwell was charged with four counts of concealing stolen property, which included 14 firearms.
“His possession of stolen property was his ongoing crime,” Risley said.
In November, while the sheriff’s investigation was well underway, Floyd Tidwell turned in 89 rifles, shotguns and handguns worth an estimated $25,000. Among the guns was a military .30-caliber M-2 carbine and two tiny “wallet” guns, all of which are illegal, authorities said. At least 38 of the 89 guns were identified as missing from the sheriff’s property room.
Tidwell’s daughter, Robin, told detectives that the former sheriff is “an avid gun collector” who displays many guns at his Phelan home.
Sheriff’s Capt. Dave Baker, who worked in the property division during Tidwell’s tenure, told detectives that Tidwell liked “old western-type” guns and would often take the guns from the evidence room without filing the required documentation.
Sgt. Gary Eisenbiesz said Tidwell “used to go through the division, as if shopping, to take his pick of weapons.” Eisenbiesz said he ultimately decided to hide guns from Tidwell so “he would have something to sell at the [county gun] auctions.”
In one case, a couple who tried to retrieve their guns were told the guns were lost, according to the district attorney’s case summary.
Finding the missing firearms might be difficult. Tidwell’s daughter-in-law, Karole Tidwell, told a sheriff’s detective that the former sheriff “would frequently clean out his garage or storage areas and would have boxes full of firearms he gave away to friends and family.”
On Monday, Tidwell appeared in court in a gray suit and powder-blue tie, with a San Bernardino County sheriff’s pin in his lapel. The 38-year law enforcement veteran shook hands with a sheriff’s deputy serving as bailiff, and shook his head in disgust as the court hearing progressed. “Forty years of service for this,” Tidwell muttered to his family.
San Bernardino County Superior Court Judge J. Michael Welch asked Tidwell to answer the charges.
“Guilty, your honor,” he said.
COMMISSION OBTAINS PRELIMINARY INJUNCTION IN $60 MILLION SECURITIES FRAUD SCHEME TARGETED AT ELDERLY VICTIMS IN SOUTHERN CALIFORNIA
U.S. Securities and Exchange Commission
Litigation Release No. 18703 / May 11, 2004
COMMISSION OBTAINS PRELIMINARY INJUNCTION IN $60 MILLION SECURITIES FRAUD SCHEME TARGETED AT ELDERLY VICTIMS IN SOUTHERN CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
On May 6, 2004, the Securities and Exchange Commission ("Commission") obtained a preliminary injunction in a multi-million dollar securities fraud scheme perpetrated by six Southern California defendants: D.W. Heath & Associates, Inc., Private Capital Management, Inc., Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC, all with offices in Hemet, Brea, Temecula, and Pasadena; Daniel William Heath, 47, of Chino Hills; and Denis Timothy O'Brien, 49, of Yorba Linda. The defendants agreed to the entry of the preliminary injunction. The Commission alleges that the defendants, who raised at least $60 million, lured elderly victims to workshops with the promise of a free lunch and then bilked them out of their retirement money by purporting to sell them safe, guaranteed notes. U.S. District Judge John F. Walter of the U.S. District Court for the Central District of California also set a hearing on the Commission's application for appointment of a permanent receiver for May 20, 2004.
The Commission's complaint, filed on April 28, 2004, in federal court in Los Angeles, alleges that the defendants fraudulently induced at least 803 elderly investors nationwide to invest in PCM notes that purportedly pay a "guaranteed" return of 5.5% to 8% per year. The defendants claim that investor funds will be used to make secured loans to businesses. The defendants also represent that independent IRA administrators conducted "due diligence" on the PCM Notes and that either investors will be repaid their principal at maturity, or they may redeem all or part of their investment before maturity, subject to a 10% penalty. Finally, the defendants claim that PCM and the PCM Fund are California entities.
According to the complaint, these representations are false. There is no evidence that there are any secured loans. The PCM Notes also are not liquid because the defendants have failed to promptly return investor funds. The complaint further alleges that some investors have had to threaten to file, or actually filed, lawsuits against the defendants to get back their money. Nor is it true that IRA administrators have conducted due diligence. Finally, there is no record that either PCM or the PCM Fund are California legal entities.
The Court's Order of May 6, 2004, preliminarily enjoins the defendants from future violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Order also freezes the assets of all defendants (except O'Brien), orders an accounting, prevents the destruction of documents, and expedites discovery. The Commission also seeks permanent injunctions, and other relief, including disgorgement and civil penalties against all defendants. The Commission acknowledges the assistance of the Riverside County District Attorneys' Office, the California Department of Corporations, and the United States Postal Inspection Service.
http://www.sec.gov/litigation/litreleases/lr18703.htm
Litigation Release No. 18703 / May 11, 2004
COMMISSION OBTAINS PRELIMINARY INJUNCTION IN $60 MILLION SECURITIES FRAUD SCHEME TARGETED AT ELDERLY VICTIMS IN SOUTHERN CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN, No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
On May 6, 2004, the Securities and Exchange Commission ("Commission") obtained a preliminary injunction in a multi-million dollar securities fraud scheme perpetrated by six Southern California defendants: D.W. Heath & Associates, Inc., Private Capital Management, Inc., Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC, all with offices in Hemet, Brea, Temecula, and Pasadena; Daniel William Heath, 47, of Chino Hills; and Denis Timothy O'Brien, 49, of Yorba Linda. The defendants agreed to the entry of the preliminary injunction. The Commission alleges that the defendants, who raised at least $60 million, lured elderly victims to workshops with the promise of a free lunch and then bilked them out of their retirement money by purporting to sell them safe, guaranteed notes. U.S. District Judge John F. Walter of the U.S. District Court for the Central District of California also set a hearing on the Commission's application for appointment of a permanent receiver for May 20, 2004.
The Commission's complaint, filed on April 28, 2004, in federal court in Los Angeles, alleges that the defendants fraudulently induced at least 803 elderly investors nationwide to invest in PCM notes that purportedly pay a "guaranteed" return of 5.5% to 8% per year. The defendants claim that investor funds will be used to make secured loans to businesses. The defendants also represent that independent IRA administrators conducted "due diligence" on the PCM Notes and that either investors will be repaid their principal at maturity, or they may redeem all or part of their investment before maturity, subject to a 10% penalty. Finally, the defendants claim that PCM and the PCM Fund are California entities.
According to the complaint, these representations are false. There is no evidence that there are any secured loans. The PCM Notes also are not liquid because the defendants have failed to promptly return investor funds. The complaint further alleges that some investors have had to threaten to file, or actually filed, lawsuits against the defendants to get back their money. Nor is it true that IRA administrators have conducted due diligence. Finally, there is no record that either PCM or the PCM Fund are California legal entities.
The Court's Order of May 6, 2004, preliminarily enjoins the defendants from future violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Order also freezes the assets of all defendants (except O'Brien), orders an accounting, prevents the destruction of documents, and expedites discovery. The Commission also seeks permanent injunctions, and other relief, including disgorgement and civil penalties against all defendants. The Commission acknowledges the assistance of the Riverside County District Attorneys' Office, the California Department of Corporations, and the United States Postal Inspection Service.
http://www.sec.gov/litigation/litreleases/lr18703.htm
2004-05-03
FEDERAL, STATE, AND LOCAL LAW ENFORCEMENT HALT $60 MILLION FRAUDULENT SCHEME TARGETED AT ELDERLY VICTIMS IN SOUTHERN CALIFORNIA
U.S. Securities and Exchange Commission
Litigation Release No. 18689 / May 3, 2004
FEDERAL, STATE, AND LOCAL LAW ENFORCEMENT HALT $60 MILLION FRAUDULENT SCHEME TARGETED AT ELDERLY VICTIMS IN SOUTHERN CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
The Securities and Exchange Commission ("Commission") filed an emergency action on April 28th to halt an on-going multi-million dollar securities fraud scheme perpetrated by six Southern California defendants: D.W. Heath & Associates, Inc., Private Capital Management, Inc., Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC, all with offices in Hemet, Brea and Pasadena; Daniel William Heath, 47, of Chino Hills; and Denis Timothy O'Brien, 49, of Yorba Linda. The Commission alleges that the defendants, who have raised at least $60 million to date, lured elderly victims to workshops with the promise of a free lunch and then bilked them out of their retirement money by purporting to sell them safe, guaranteed notes. The Commission coordinated its investigation with the United States Postal Inspection Service, the California Department of Corporations, and the Riverside County District Attorney's Office, which late yesterday executed criminal search warrants at the defendants' offices in Hemet, Brea and Pasadena and at Heath's and O'Brien's homes. Also yesterday, U.S. District Judge John F. Walter of the U.S. District Court for the Central District of California issued orders freezing the defendants' assets.
The Commission's complaint, filed in federal court in Los Angeles, alleges that the defendants fraudulently induced at least 803 elderly investors nationwide to invest in PCM notes that purportedly pay a "guaranteed" return of 5.5% to 8% per year. The defendants claim that investor funds will be used to make secured loans to businesses. The defendants also represent that independent IRA administrators conducted "due diligence" on the PCM Notes and that either investors will be repaid their principal at maturity, or they may redeem all or part of their investment before maturity, subject to a 10% penalty. Finally, the defendants claim that PCM and the PCM Fund are California entities.
According to the complaint, these representations are false. There is no evidence that there are any secured loans. The PCM Notes also are not liquid because the defendants have failed to promptly return investor funds. The complaint further alleges that some investors have had to threaten to file, or actually filed, lawsuits against the defendants to get back their money. Nor is it true that IRA administrators have conducted due diligence. Finally, there is no record that either PCM or the PCM Fund are California legal entities.
In its lawsuit, the Commission obtained an order freezing the assets of all defendants (except O'Brien), an accounting, an order preventing destruction of documents, an order expediting discovery, and an order temporarily enjoining all of the defendants from future violations of the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also seeks preliminary and permanent injunctions, and other relief, including disgorgement and civil penalties against all defendants. A hearing to determine whether a temporary receiver should be appointed over Heath & Associates, PCM, Private Collateral Management, and the PCM Fund is scheduled for Monday, May 3, 2004 at 1:30 p.m. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for May 10 2004, at 1:30 p.m. The Commission acknowledges the California Department of Corporations, the Riverside County District Attorneys' Office and the United States Postal Inspection Service for their assistance in this investigation.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr18689.htm
Litigation Release No. 18689 / May 3, 2004
FEDERAL, STATE, AND LOCAL LAW ENFORCEMENT HALT $60 MILLION FRAUDULENT SCHEME TARGETED AT ELDERLY VICTIMS IN SOUTHERN CALIFORNIA
SECURITIES AND EXCHANGE COMMISSION v. D.W. HEATH & ASSOCIATES, INC., PRIVATE CAPITAL MANAGEMENT, INC., PRIVATE COLLATERAL MANAGEMENT, INC., PCM FIXED INCOME FUND I, LLC, DANIEL WILLIAM HEATH, AND DENIS TIMOTHY O'BRIEN No. CV 04 - 02949JFW(Ex)(C.D. Cal.)
The Securities and Exchange Commission ("Commission") filed an emergency action on April 28th to halt an on-going multi-million dollar securities fraud scheme perpetrated by six Southern California defendants: D.W. Heath & Associates, Inc., Private Capital Management, Inc., Private Collateral Management, Inc., and PCM Fixed Income Fund I, LLC, all with offices in Hemet, Brea and Pasadena; Daniel William Heath, 47, of Chino Hills; and Denis Timothy O'Brien, 49, of Yorba Linda. The Commission alleges that the defendants, who have raised at least $60 million to date, lured elderly victims to workshops with the promise of a free lunch and then bilked them out of their retirement money by purporting to sell them safe, guaranteed notes. The Commission coordinated its investigation with the United States Postal Inspection Service, the California Department of Corporations, and the Riverside County District Attorney's Office, which late yesterday executed criminal search warrants at the defendants' offices in Hemet, Brea and Pasadena and at Heath's and O'Brien's homes. Also yesterday, U.S. District Judge John F. Walter of the U.S. District Court for the Central District of California issued orders freezing the defendants' assets.
The Commission's complaint, filed in federal court in Los Angeles, alleges that the defendants fraudulently induced at least 803 elderly investors nationwide to invest in PCM notes that purportedly pay a "guaranteed" return of 5.5% to 8% per year. The defendants claim that investor funds will be used to make secured loans to businesses. The defendants also represent that independent IRA administrators conducted "due diligence" on the PCM Notes and that either investors will be repaid their principal at maturity, or they may redeem all or part of their investment before maturity, subject to a 10% penalty. Finally, the defendants claim that PCM and the PCM Fund are California entities.
According to the complaint, these representations are false. There is no evidence that there are any secured loans. The PCM Notes also are not liquid because the defendants have failed to promptly return investor funds. The complaint further alleges that some investors have had to threaten to file, or actually filed, lawsuits against the defendants to get back their money. Nor is it true that IRA administrators have conducted due diligence. Finally, there is no record that either PCM or the PCM Fund are California legal entities.
In its lawsuit, the Commission obtained an order freezing the assets of all defendants (except O'Brien), an accounting, an order preventing destruction of documents, an order expediting discovery, and an order temporarily enjoining all of the defendants from future violations of the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also seeks preliminary and permanent injunctions, and other relief, including disgorgement and civil penalties against all defendants. A hearing to determine whether a temporary receiver should be appointed over Heath & Associates, PCM, Private Collateral Management, and the PCM Fund is scheduled for Monday, May 3, 2004 at 1:30 p.m. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for May 10 2004, at 1:30 p.m. The Commission acknowledges the California Department of Corporations, the Riverside County District Attorneys' Office and the United States Postal Inspection Service for their assistance in this investigation.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr18689.htm
2004-04-27
SEC Complaint in the matter of SEC v. D.W. HEATH & ASSOCIATES, INC.; et al
JOSE F. SANCHEZ, Cal. Bar No. 161362
LISA A. GOK, Cal. Bar No. 147660
J. CINDY ESON, Cal. Bar No. 219782
ROBERTO A. TERCERO, Cal. Bar No. 143760
DAVID S. BROWN, Cal. Bar No. 134569
CAMMY C. DUPONT, Cal. Bar No. 176660
Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
EASTERN DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
vs.
D.W. HEATH & ASSOCIATES, INC.;
PCM FIXED INCOME FUND I, LLC;
PRIVATE CAPITAL MANAGEMENT,
INC.; PRIVATE COLLATERAL
MANAGEMENT, INC.; DANIEL
WILLIAM HEATH; AND DENIS
TIMOTHY O’BRIEN,
Defendants.
Case No. CV 04-02949 JFW (Ex)
COMPLAINT FOR VIOLATIONS
OF THE FEDERAL SECURITIES
LAWS
Plaintiff Securities and Exchange Commission (“Commission”) alleges as
follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this action pursuant to Sections
20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15
U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e)
and 27 of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C.
§§ 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa. Defendants have, directly or
indirectly, made use of the means or instrumentalities of interstate commerce, of
the mails, or of the facilities of a national securities exchange, in connection with
the transactions, acts, practices, and courses of business alleged in this complaint.
2. Venue is proper in this district pursuant to Section 22(a) of the
Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act,
15 U.S.C. § 78aa, because certain of the transactions, acts, practices, and courses
of conduct constituting violations of the federal securities laws occurred within
this district.
SUMMARY
3. This case involves the ongoing fraudulent and unregistered offer and
sale of securities perpetrated by Daniel William Heath (“Heath”) and Denis
Timothy O’Brien (“O’Brien”) through various affiliated entities, D.W. Heath &
Associates, Inc. (“Heath & Associates”), Private Capital Management, Inc.
(“PCM”), Private Collateral Management, Inc. (“Private Collateral Management”),
and the PCM Fixed Income Fund I, LLC (the “PCM Fund”) (collectively,
“defendants”). Since at least 1996, defendants have targeted senior citizens and
induced them to invest their retirement and other funds in promissory notes
offered through PCM or the PCM Fund (the “PCM Notes”). Defendants have sold
the PCM notes to at least 803 elderly investors nationwide. The current value of
these investments is at least $69.9 million, all of which is purportedly under the
management and control of defendants.
4. To lure investors, defendants have held – and are scheduled to hold
in the coming months – group workshops and one-on-one meetings, in which they
tout the PCM Notes as safe, secured, and liquid investments. Specifically, Heath,
O’Brien, and defendants’ sales agents represent to investors, among other things,
that (1) investor money is pooled to make business loans that are secured by the
- 3 -
borrowers’ assets; (2) the PCM Notes pay a “guaranteed” return of at least 5.5% to
8% per year, which can be paid in cash or allowed to accrue at the investors’
discretion; (3) investors will be repaid their principal at maturity, or they may
redeem all or part of their investment before maturity subject to a penalty of up to
10%; (4) independent third-party IRA administrators conducted “due diligence”
on the PCM Notes for the protection of investors; and (5) PCM and the PCM Fund
are California business entities.
5. These representations are all false. First, defendants have not used
investor funds to make any secured loans. Defendants have not recorded any
UCC-1 financing statements that show PCM, the PCM Fund, or any of the
defendants as a secured creditor on any loans. The PCM Notes also are not liquid.
In fact, defendants have failed to promptly honor redemption requests from
investors, who have been able to take their money out only after threatening to
file, or actually filing, a lawsuit against defendants. Nor is it true that defendants’
IRA administrators have conducted due diligence or otherwise approved the PCM
Notes as a safe investment. Furthermore, there is no record that PCM or the PCM
Fund are California business entities.
6. In addition to these misrepresentations, defendants appear to be
operating an undisclosed Ponzi scheme. In fact, a November 2002 Private
Placement Memorandum (“PPM”) provided by Heath to the IRA administrators –
but never distributed to investors – states that funds from new investors will be
used to pay principal and interest to existing investors.
7. Defendants also failed to disclose to investors that in March 1998, the
California Department of Corporations (“DOC”) issued two desist-and-refrain
orders (“D & R Orders”) against Heath & Associates, Heath, PCM, and the PCM
Fund for engaging in the unregistered sale of securities and for acting as
unregistered broker-dealers. Despite the fact Heath consented to these orders,
defendants continue to use unlicensed sales agents to conduct an unregistered
- 4 -
offering. Heath and O’Brien also are misleading investors into believing that the
D & R Orders do not apply to the PCM Notes offering, when they know
otherwise. Defendants have not registered themselves or their offering with the
Commission.
8. The defendants, by engaging in the conduct described in this
complaint, have violated, and unless enjoined will continue to violate, the
securities registration and antifraud provisions of the Securities Act and Exchange
Act. By this complaint, the Commission seeks a temporary restraining order and
other emergency relief, preliminary and permanent injunctions, disgorgement with
prejudgment interest, and civil penalties against all of the defendants; an asset
freeze against and the appointment of a receiver over Heath & Associates, PCM,
Private Collateral Management, and the PCM Fund; and a personal asset freeze
against Heath.
THE DEFENDANTS
9. D.W. Heath & Associates, Inc., was incorporated in California in
1998. It has offices in Hemet, Brea, and Pasadena, California, but the address
provided to the California Secretary of State is a commercial receiving mail
facility (i.e., a mail drop) in Placentia, California. Heath & Associates purports to
be a financial services company established in 1983 that provides investment
advice and estate planning services to senior citizens. Heath & Associates is the
servicing and marketing agent for PCM and the placement and servicing agent for
the PCM Fund. On March 30, 1998, the DOC issued D & R Orders against and
stipulated to by Heath & Associates, Heath, PCM, and the PCM Fund for the
unregistered sale of securities and for acting as an unregistered broker-dealer.
Heath & Associates is not registered with the Commission.
10. PCM Fixed Income Fund I, LLC, purports to be a California limited
liability company, but is a business entity of unknown form. It uses the same
business address as Heath & Associates in Hemet, California. The PCM Fund is
- 5 -
not registered with the Commission.
11. Private Capital Management, Inc., purports to be a corporation, but is
a business entity of unknown form. It is the general manager of the PCM Fund
and receives investor funds. PCM is also referred to as “a Private Collateral
Management company” in documents provided to investors. PCM is not
registered with the Commission.
12. Private Collateral Management, Inc., was incorporated in California
in 1995, but the California Secretary of State recently suspended its corporate
status. Its address of record is the same mail drop as Heath & Associates. Private
Collateral Management is not registered with the Commission.
13. Daniel William Heath, age 47, resides in Chino Hills, California. He
controls Heath & Associates, the PCM Fund, PCM, and Private Collateral
Management. Heath is the president and senior financial consultant of Heath &
Associates, the chief executive officer and chief financial officer of the PCM
Fund, the co-founder, president, chief executive officer, and chief financial officer
of PCM, and the president of Private Collateral Management. Heath is the
signatory on PCM’s bank accounts. He does not hold any securities licenses and
is not registered with the Commission.
14. Denis Timothy O’Brien, age 49, resides in Yorba Linda, California.
He is a director of Heath & Associates, where he also serves as an associate and
financial consultant. O’Brien does not hold any securities licenses and is not
registered with the Commission.
THE FRAUDULENT SCHEME
A. Defendants’ Offering And Sales Efforts
15. Since at least 1996 to the present, defendants have offered and sold
PCM Notes to at least 803 investors nationwide. The PCM Notes purportedly held
in investors’ IRA accounts are valued at $69.9 million. This figure has been
calculated by adding the total principal invested with defendants and the accrued
- 6 -
interest promised by defendants to investors.
16. Defendants target senior citizens in their ongoing solicitations. Heath
& Associates sponsors free financial workshops for senior citizens at various
Southern California restaurants. Using leads developed from senior citizens who
attended previous workshops, defendants mail and telephone invitations to
prospective investors, luring them with a free lunch. At least one investor saw a
newspaper ad for the workshops.
17. Defendants also are using an Internet website (www.seniorz.org) to
promote their upcoming workshops. According to the website, workshops are
scheduled through the end of April 2004, at five different Southern California
locations. Defendants have scheduled workshops at a restaurant in Glendale,
California, through June 2004.
18. Heath & Associates has held two investor workshops per month at
one restaurant in Hemet, California for at least the past seven years. In that
restaurant, serving staff is not allowed in the room during the workshops.
19. At the workshops, senior citizens listen to presentations by Heath and
O’Brien, who describe themselves as financial consultants. They assure investors
that the PCM Notes are safe, secured, and liquid. They represent that IRA
administrators have conducted “due diligence” on the PCM Notes and that
investors can use IRA funds to buy them. Heath and O’Brien explain at the
workshops that the notes are “secured” corporate notes that are “backed by assets”
of the borrower. They further tell prospective investors that the PCM Notes are
much safer than stocks and bonds, do not fluctuate in price, and pay a much higher
rate of return than bank certificates of deposits. They also tell prospective
investors that the PCM Notes pay a “guaranteed” annual return of 5.5% to 8%,
which investors can elect to receive each month or reinvest in the PCM Notes.
20. To learn more about the PCM Notes, prospective investors are
required to sign up for a free, one-on-one consultation with a Heath & Associates
- 7 -
financial consultant. Prospective investors can schedule their follow up
consultation at the end of the workshop. They are given a list of financial
documents – including bank, brokerage, and mutual fund statements, and their tax
returns for the last two years – to bring with them to their one-on-one
appointment. Prospective investors are also asked to fill out a “Seminar
Questionnaire” that asks for the name and telephone number of two other people
whom they know “would benefit from this seminar.”
21. Investors are not provided with any other documents at the
workshops, except for a one-page brochure about Heath & Associates, which
includes “testimonials” from clients and professional associates.
22. Heath, O’Brien, and defendants’ other sales agents conduct the
one-on-one sessions with prospective investors. At these sessions, Heath and
O’Brien reiterate that the PCM Notes are “safe” because they are “secured” and
“backed by assets,” and that the returns paid to investors are “guaranteed.”
O’Brien compares the notes to a home mortgage, where the lender can foreclose
on the property if the borrower defaults. Heath and O’Brien also explain that
PCM pools investor funds to make collateralized loans to small and medium-sized
companies, and that PCM is experienced in making these loans and in managing
the loan portfolio for investors. No other use of investor funds is disclosed to
prospective investors.
23. During the one-on-one sessions, Heath and O’Brien also tell investors
that PCM and the investors share in the profits generated by the interest paid on
the loans by the borrowers. They also represent that the PCM Notes mature in two
to six years. Investors, however, are assured that they may redeem all or part of
their principal before maturity subject to a penalty of up to 10%. O’Brien assured
at least one investor that he could get his money out at any time, and that the
amount of the penalty would decrease as his PCM Note matured.
/ / /
- 8 -
24. Some investors purchase the PCM Notes at their first one-on-one
session, while others do so during second or third appointments.
25. Defendants do not provide investors with any offering materials or
financial statements about PCM or the PCM Fund. Some investors have been
given a PCM brochure in connection with their first investment. Other investors
received the brochure years after they invested, and only after asking Heath &
Associates for some information about their investment. This brochure is targeted
at senior citizens, and describes generally that the PCM Notes are secured
corporate notes designed for investors seeking high current monthly income,
capital preservation, and liquidity, and that investors may redeem their PCM Notes
through a “quarterly repurchase program.”
B. The Mechanics Of Investing With Defendants
26. If a prospective investor decides to invest in the PCM Notes through
an IRA account, the investor must open a new IRA account with an IRA
administrator previously selected by Heath & Associates. Once the new IRA is
opened, the investor then transfers funds from his existing IRA account into the
new one, and directs the IRA administrator to purchase the PCM Notes on his or
her behalf. The IRA administrator transfers the investor’s funds to PCM or the
PCM Fund as payment for the PCM Notes. Investors can designate their Heath &
Associates financial consultant as the “Financial Representative” on their new
IRA.
27. If a prospective investor decides to invest non-IRA funds in the PCM
Notes, Heath and O’Brien tell the investor to make out a check to PCM or Private
Capital Management. If the investor does not have funds readily available, Heath
& Associates will help the prospective investor sell other investments to free up
cash to invest in the PCM Notes. In one case, a Heath & Associates financial
consultant wrote a letter by hand to the investor’s annuity company, instructing
that the annuity be sold, and had the investor sign the letter on the spot without
- 9 -
informing the investor that she would have to pay taxes and fees for liquidating
her annuity.
28. When investors purchase the PCM Notes through an IRA, the funds
are held in the name of the PCM Fund. When investors purchase the PCM Notes
using non-IRA funds, the funds are held in the name of PCM. The defendants,
however, generally do not explain the difference between PCM and the PCM Fund
when describing the investment at the workshops or during the one-on-one
sessions. Some investors did not know whether their funds were invested in PCM
or the PCM Fund until after they gave their money to Heath &Associates and they
received documentation showing how their money was invested.
29. Some investors are given a receipt and asked to sign an “Investments
Agreement,” in which they indicate whether their interest payments are to be paid
monthly or allowed to accrue on account. This Agreement also authorizes Heath
& Associates to act as the “sole servicing agent” for the investment. Some
investors were also asked to sign a PCM “New Account Application.” Neither the
Investments Agreement nor the New Account Application discloses any
information about the PCM Notes.
30. In connection with a non-IRA investment, some investors have
received a promissory note and a security agreement. Others merely have received
a purchase confirmation and receipt reflecting an investment in a “secured
corporate note.”
31. After making their initial investment, investors receive quarterly
account statements either from Heath & Associates or the IRA administrator. The
account statements show both the purported value of the investment, the amount
of interest generated, and any principal or payments that have been made or
interest that has accrued. For IRA investments, the IRA administrator generates
the account statement based on information provided by Heath & Associates.
/ / /
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32. Some investors receive their investment returns in monthly payments.
Defendants usually send interest checks to investors at the beginning of each
month.
C. Defendants’ Misrepresentations And Omissions
1. The Defendants Are Operating An Undisclosed Ponzi Scheme
33. While defendants represent that investor funds will be used to make
collateralized loans to businesses, a PPM for the PCM Notes offering dated
November 1, 2002, which Heath provided to Heath & Associates’ IRA
administrators in 2003, states that investor funds will be used to, among other
things, make principal and interest payments to other investors. This PPM was
never disseminated to investors, even though some investors specifically requested
a PPM or any offering materials. Such undisclosed use of investor funds
constitutes a Ponzi scheme.
2. The PCM Notes Are Not Secured
34. Neither PCM, the PCM Fund, nor any of the other defendants have
provided any secured loans to borrowers. No UCC-1 financing statements that
identify PCM, the PCM Fund, or any of the defendants as a secured creditor have
been filed with the State of California or any other state. Nor are Heath &
Associates, PCM, or Private Collateral Management licensed to operate under the
California Finance Lenders Law or the California Residential Mortgage Lending
Act. Even if defendants have used investor funds to make any collateralized
loans, the security interests in the collateral have not been perfected under the
UCC, and consequently, contrary to defendants’ representations, investors’ funds
are not secured or protected.
3. The PCM Notes Are Not Liquid
35. Some investors have been unable to redeem their PCM Notes as
Heath, O’Brien, and defendants’ sales agents have represented. Rather than
honoring redemption requests, Heath & Associates has told some investors that
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the PCM Notes “renew automatically.” At least one investor had to wait five
months to redeem her investment while Heath & Associates purportedly “audited”
her account. O’Brien told one investor that a $50,000 redemption would disrupt
their operations and that they would have to pay him in monthly installments of
$10,000. And when that investor retained an attorney, Heath unexpectedly went
to the investor’s home and tried to convince him that he should not have an
attorney representing him and that he would be better off just leaving things in
Heath’s hands. Other investors could not redeem their investments until they
resorted to threatening or filing a lawsuit. In another case, Heath and O’Brien
flatly denied that the investor could make “premature” redemptions because it was
not “typed” in the PCM Note that the investor received.
4. Defendants Did Not Disclose And Lied About the D & R Orders
36. Defendants failed to disclose to investors that in March 1998, the
DOC issued the D & R Orders against Heath, Heath & Associates, PCM, and the
PCM Fund for engaging in the unregistered sale of securities and for acting as
unregistered broker-dealers. Heath knew about the orders, as he consented to and
signed the stipulation for the entry of the D & R Orders.
37. In early 2003, the IRA administrator used by Heath & Associates at
the time learned that the D & R Orders had been issued. When the IRA
administrator could not obtain assurances from Heath and Heath & Associates that
they were complying with the D & R Orders, the IRA administrator stopped
accepting any new or additional investments in the PCM Notes. As a result, in
March 2003, the IRA administrator sent a certified letter to investors notifying
them of the two D & R Orders. In response, Heath & Associates sent a letter to
the same investors and falsely represented that its future solicitations would
comply with California state securities laws and would be made through NASD
licensed broker-dealers. Defendants never have complied with the D & R Orders,
and continue to be unlicensed, to use unlicensed brokers, and to engage in an
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unregistered offering.
38. In addition, after March 2003, Heath and O’Brien repeatedly
downplayed the significance of the D & R Orders or falsely represented to
investors that they did not apply to the PCM Notes offering. They claimed that
defendants were not selling securities. Heath also told the IRA administrator that
the D & R Orders were unrelated to the PCM Fund, and that they should not have
been on his record, but that it would cost too much to have them “wiped off.”
Heath told an investment adviser, who was trying to get information for an
investor, that the D & R Orders were inapplicable because he was operating under
an exemption as “the issuer” and he was not “brokering the deal.” Similarly,
O’Brien also told investors that the letter from the IRA administrator should not
have been sent to all investors because the D & R Orders only affected
approximately 14 new investments. In addition, O’Brien told at least one investor
that the DOC had issued the D & R Orders because an investor had complained
that she should get her money back because PCM had failed to file a form with the
DOC.
5. The IRA Administrators Did Not Approve The Offering
39. Heath & Associates has used two different IRA Administrators
during the course of the PCM Notes offering. Heath and O’Brien repeatedly have
misrepresented the role that the IRA administrators played in the offering. They
have told prospective and existing investors that the IRA administrators have
performed due diligence for the protection of investors. The two IRA
administrators, however, have never conducted “due diligence” or approved the
PCM Notes in any way.
6. PCM And The PCM Fund Are Not California Business Entities
40. Heath and O’Brien represent to investors that PCM and the PCM
Fund are California legal business entities. O’Brien represented to at least one
investor that PCM is a California corporation. The PPM provided to the IRA
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administrators represents that the PCM Fund is a California limited liability
corporation. Neither representation is true. Neither PCM nor the PCM Fund are,
or have ever been, registered as California legal business entities.
D. Heath’s And O’Brien’s Scienter
41. As the principal officer and control person of defendant entities,
Heath knew, or was reckless in not knowing, that (1) the PCM Notes offering was
an apparent Ponzi scheme because he gave the IRA administrators the PPM and
controlled PCM’s bank accounts; (2) the PCM Notes were not liquid because he
personally participated in tactics designed to delay investors’ liquidations of their
accounts; (3) the PCM Notes were not secured and safe because he did not cause
UCC-1 financing statements to be filed in order to perfect collateralized loans
purportedly made by PCM and the PCM Fund; (4) he failed to disclose the D & R
Orders and misrepresented their applicability to the PCM Notes offering; (5) the
IRA administrators did not conduct “due diligence” on the PCM Notes; and (6)
PCM and the PCM Fund have never been California corporate entities.
42. O’Brien, a Heath & Associates director, also knew, or was reckless in
not knowing, that (1) the PCM Notes are not liquid because he has failed to
disclose to investors that their Notes renew automatically and that “premature”
redemptions are not permitted; (2) the D & R Orders are not disclosed to investors;
and (3) Heath & Associates, Heath, PCM and the PCM Fund are misrepresenting
their compliance with the D & R Orders.
43. As a sales agent offering and selling securities, O’Brien had an
affirmative duty, and was required, to conduct an independent investigation
related to the PCM Notes. Appropriate due diligence would have revealed to him
the true nature of the PCM Notes offering, including the apparent Ponzi scheme,
the lack of liquidity, and the D & R Orders. O’Brien, however, did not conduct
any independent investigation regarding his and other sales agents’ representations
about the PCM Notes to investors. Indeed, O’Brien has admitted to one investor
- 14 -
that he did not know, nor did he need to know, how investor funds were used.
FIRST CLAIM FOR RELIEF
UNREGISTERED OFFER AND SALE OF SECURITIES
Violations of Sections 5(a) and 5(c) of the Securities Act
44. The Commission realleges and incorporates by reference paragraphs
1 through 43 above.
45. The defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, made use of means or instruments of
transportation or communication in interstate commerce or of the mails, to offer to
sell or to sell securities, or to carry or cause such securities to be carried through
the mails or in interstate commerce for the purpose of sale or for delivery after
sale.
46. No registration statement has been filed with the Commission or has
been in effect with respect to the offerings alleged herein.
47. By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Sections 5(a)
and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
SECOND CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF SECURITIES
Violations of Section 17(a) of the Securities Act
48. The Commission realleges and incorporates by reference paragraphs
1 through 43 above.
49. The defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, in the offer or sale of securities by the use
of means or instruments of transportation or communication in interstate
commerce or by use of the mails:
a. with scienter, employed devices, schemes, or artifices to
defraud;
- 15 -
b. obtained money or property by means of untrue statements of a
material fact or by omitting to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
c. engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the
purchaser.
50. By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Section 17(a)
of the Securities Act, 15 U.S.C. § 77q(a).
THIRD CLAIM FOR RELIEF
FRAUD IN CONNECTION WITH THE
PURCHASE OR SALE OF SECURITIES
Violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder
51. The Commission realleges and incorporates by reference paragraphs
1 through 43 above.
52. The defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, in connection with the purchase or sale of a
security, by the use of means or instrumentalities of interstate commerce, of the
mails, or of the facilities of a national securities exchange, with scienter:
a. employed devices, schemes, or artifices to defraud;
b. made untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading; or
c. engaged in acts, practices, or courses of business which
operated or would operate as a fraud or deceit upon other
- 16 -
persons.
53. By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Section 10(b)
of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R.
§ 240.10b-5.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that the defendants committed
the alleged violations.
II.
Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d),
temporarily, preliminarily, and permanently enjoining the defendants and their
officers, agents, servants, employees, and attorneys, and those persons in active
concert or participation with any of them, who receive actual notice of the order or
judgment by personal service or otherwise, and each of them, from violating
Sections 5(a), 5(c), and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c),
and 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and
Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
III.
Issue, in a form consistent with Fed. R. Civ. P. 65, a temporary restraining
order and a preliminary injunction freezing the assets of each of Heath, Heath &
Associates, the PCM Fund, PCM, and Private Collateral Management, appointing
a receiver over Heath & Associates, the PCM Fund, PCM, and Private Collateral
Management, prohibiting each of the defendants from destroying documents, and
requiring accountings from each of the defendants.
/ / /
/ / /
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IV.
Order each defendant to disgorge all ill-gotten gains from their illegal
conduct, together with prejudgment interest thereon.
V.
Order each defendant to pay civil penalties under Section 20(d) of the
Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15
U.S.C. § 78u(d)(3).
VI.
Retain jurisdiction of this action in accordance with the principles of equity
and the Federal Rules of Civil Procedure in order to implement and carry out the
terms of all orders and decrees that may be entered, or to entertain any suitable
application or motion for additional relief within the jurisdiction of this Court.
VII.
Grant such other and further relief as this Court may determine to be just
and necessary.
DATED: April 27, 2004 s/ Jose F. Sanchez
JOSE F. SANCHEZ
DAVID S. BROWN
CAMMY C. DUPONT
Attorneys for Plaintiff
Securities and Exchange Commission
LISA A. GOK, Cal. Bar No. 147660
J. CINDY ESON, Cal. Bar No. 219782
ROBERTO A. TERCERO, Cal. Bar No. 143760
DAVID S. BROWN, Cal. Bar No. 134569
CAMMY C. DUPONT, Cal. Bar No. 176660
Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
EASTERN DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
vs.
D.W. HEATH & ASSOCIATES, INC.;
PCM FIXED INCOME FUND I, LLC;
PRIVATE CAPITAL MANAGEMENT,
INC.; PRIVATE COLLATERAL
MANAGEMENT, INC.; DANIEL
WILLIAM HEATH; AND DENIS
TIMOTHY O’BRIEN,
Defendants.
Case No. CV 04-02949 JFW (Ex)
COMPLAINT FOR VIOLATIONS
OF THE FEDERAL SECURITIES
LAWS
Plaintiff Securities and Exchange Commission (“Commission”) alleges as
follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this action pursuant to Sections
20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15
U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e)
and 27 of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C.
§§ 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa. Defendants have, directly or
indirectly, made use of the means or instrumentalities of interstate commerce, of
the mails, or of the facilities of a national securities exchange, in connection with
the transactions, acts, practices, and courses of business alleged in this complaint.
2. Venue is proper in this district pursuant to Section 22(a) of the
Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act,
15 U.S.C. § 78aa, because certain of the transactions, acts, practices, and courses
of conduct constituting violations of the federal securities laws occurred within
this district.
SUMMARY
3. This case involves the ongoing fraudulent and unregistered offer and
sale of securities perpetrated by Daniel William Heath (“Heath”) and Denis
Timothy O’Brien (“O’Brien”) through various affiliated entities, D.W. Heath &
Associates, Inc. (“Heath & Associates”), Private Capital Management, Inc.
(“PCM”), Private Collateral Management, Inc. (“Private Collateral Management”),
and the PCM Fixed Income Fund I, LLC (the “PCM Fund”) (collectively,
“defendants”). Since at least 1996, defendants have targeted senior citizens and
induced them to invest their retirement and other funds in promissory notes
offered through PCM or the PCM Fund (the “PCM Notes”). Defendants have sold
the PCM notes to at least 803 elderly investors nationwide. The current value of
these investments is at least $69.9 million, all of which is purportedly under the
management and control of defendants.
4. To lure investors, defendants have held – and are scheduled to hold
in the coming months – group workshops and one-on-one meetings, in which they
tout the PCM Notes as safe, secured, and liquid investments. Specifically, Heath,
O’Brien, and defendants’ sales agents represent to investors, among other things,
that (1) investor money is pooled to make business loans that are secured by the
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borrowers’ assets; (2) the PCM Notes pay a “guaranteed” return of at least 5.5% to
8% per year, which can be paid in cash or allowed to accrue at the investors’
discretion; (3) investors will be repaid their principal at maturity, or they may
redeem all or part of their investment before maturity subject to a penalty of up to
10%; (4) independent third-party IRA administrators conducted “due diligence”
on the PCM Notes for the protection of investors; and (5) PCM and the PCM Fund
are California business entities.
5. These representations are all false. First, defendants have not used
investor funds to make any secured loans. Defendants have not recorded any
UCC-1 financing statements that show PCM, the PCM Fund, or any of the
defendants as a secured creditor on any loans. The PCM Notes also are not liquid.
In fact, defendants have failed to promptly honor redemption requests from
investors, who have been able to take their money out only after threatening to
file, or actually filing, a lawsuit against defendants. Nor is it true that defendants’
IRA administrators have conducted due diligence or otherwise approved the PCM
Notes as a safe investment. Furthermore, there is no record that PCM or the PCM
Fund are California business entities.
6. In addition to these misrepresentations, defendants appear to be
operating an undisclosed Ponzi scheme. In fact, a November 2002 Private
Placement Memorandum (“PPM”) provided by Heath to the IRA administrators –
but never distributed to investors – states that funds from new investors will be
used to pay principal and interest to existing investors.
7. Defendants also failed to disclose to investors that in March 1998, the
California Department of Corporations (“DOC”) issued two desist-and-refrain
orders (“D & R Orders”) against Heath & Associates, Heath, PCM, and the PCM
Fund for engaging in the unregistered sale of securities and for acting as
unregistered broker-dealers. Despite the fact Heath consented to these orders,
defendants continue to use unlicensed sales agents to conduct an unregistered
- 4 -
offering. Heath and O’Brien also are misleading investors into believing that the
D & R Orders do not apply to the PCM Notes offering, when they know
otherwise. Defendants have not registered themselves or their offering with the
Commission.
8. The defendants, by engaging in the conduct described in this
complaint, have violated, and unless enjoined will continue to violate, the
securities registration and antifraud provisions of the Securities Act and Exchange
Act. By this complaint, the Commission seeks a temporary restraining order and
other emergency relief, preliminary and permanent injunctions, disgorgement with
prejudgment interest, and civil penalties against all of the defendants; an asset
freeze against and the appointment of a receiver over Heath & Associates, PCM,
Private Collateral Management, and the PCM Fund; and a personal asset freeze
against Heath.
THE DEFENDANTS
9. D.W. Heath & Associates, Inc., was incorporated in California in
1998. It has offices in Hemet, Brea, and Pasadena, California, but the address
provided to the California Secretary of State is a commercial receiving mail
facility (i.e., a mail drop) in Placentia, California. Heath & Associates purports to
be a financial services company established in 1983 that provides investment
advice and estate planning services to senior citizens. Heath & Associates is the
servicing and marketing agent for PCM and the placement and servicing agent for
the PCM Fund. On March 30, 1998, the DOC issued D & R Orders against and
stipulated to by Heath & Associates, Heath, PCM, and the PCM Fund for the
unregistered sale of securities and for acting as an unregistered broker-dealer.
Heath & Associates is not registered with the Commission.
10. PCM Fixed Income Fund I, LLC, purports to be a California limited
liability company, but is a business entity of unknown form. It uses the same
business address as Heath & Associates in Hemet, California. The PCM Fund is
- 5 -
not registered with the Commission.
11. Private Capital Management, Inc., purports to be a corporation, but is
a business entity of unknown form. It is the general manager of the PCM Fund
and receives investor funds. PCM is also referred to as “a Private Collateral
Management company” in documents provided to investors. PCM is not
registered with the Commission.
12. Private Collateral Management, Inc., was incorporated in California
in 1995, but the California Secretary of State recently suspended its corporate
status. Its address of record is the same mail drop as Heath & Associates. Private
Collateral Management is not registered with the Commission.
13. Daniel William Heath, age 47, resides in Chino Hills, California. He
controls Heath & Associates, the PCM Fund, PCM, and Private Collateral
Management. Heath is the president and senior financial consultant of Heath &
Associates, the chief executive officer and chief financial officer of the PCM
Fund, the co-founder, president, chief executive officer, and chief financial officer
of PCM, and the president of Private Collateral Management. Heath is the
signatory on PCM’s bank accounts. He does not hold any securities licenses and
is not registered with the Commission.
14. Denis Timothy O’Brien, age 49, resides in Yorba Linda, California.
He is a director of Heath & Associates, where he also serves as an associate and
financial consultant. O’Brien does not hold any securities licenses and is not
registered with the Commission.
THE FRAUDULENT SCHEME
A. Defendants’ Offering And Sales Efforts
15. Since at least 1996 to the present, defendants have offered and sold
PCM Notes to at least 803 investors nationwide. The PCM Notes purportedly held
in investors’ IRA accounts are valued at $69.9 million. This figure has been
calculated by adding the total principal invested with defendants and the accrued
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interest promised by defendants to investors.
16. Defendants target senior citizens in their ongoing solicitations. Heath
& Associates sponsors free financial workshops for senior citizens at various
Southern California restaurants. Using leads developed from senior citizens who
attended previous workshops, defendants mail and telephone invitations to
prospective investors, luring them with a free lunch. At least one investor saw a
newspaper ad for the workshops.
17. Defendants also are using an Internet website (www.seniorz.org) to
promote their upcoming workshops. According to the website, workshops are
scheduled through the end of April 2004, at five different Southern California
locations. Defendants have scheduled workshops at a restaurant in Glendale,
California, through June 2004.
18. Heath & Associates has held two investor workshops per month at
one restaurant in Hemet, California for at least the past seven years. In that
restaurant, serving staff is not allowed in the room during the workshops.
19. At the workshops, senior citizens listen to presentations by Heath and
O’Brien, who describe themselves as financial consultants. They assure investors
that the PCM Notes are safe, secured, and liquid. They represent that IRA
administrators have conducted “due diligence” on the PCM Notes and that
investors can use IRA funds to buy them. Heath and O’Brien explain at the
workshops that the notes are “secured” corporate notes that are “backed by assets”
of the borrower. They further tell prospective investors that the PCM Notes are
much safer than stocks and bonds, do not fluctuate in price, and pay a much higher
rate of return than bank certificates of deposits. They also tell prospective
investors that the PCM Notes pay a “guaranteed” annual return of 5.5% to 8%,
which investors can elect to receive each month or reinvest in the PCM Notes.
20. To learn more about the PCM Notes, prospective investors are
required to sign up for a free, one-on-one consultation with a Heath & Associates
- 7 -
financial consultant. Prospective investors can schedule their follow up
consultation at the end of the workshop. They are given a list of financial
documents – including bank, brokerage, and mutual fund statements, and their tax
returns for the last two years – to bring with them to their one-on-one
appointment. Prospective investors are also asked to fill out a “Seminar
Questionnaire” that asks for the name and telephone number of two other people
whom they know “would benefit from this seminar.”
21. Investors are not provided with any other documents at the
workshops, except for a one-page brochure about Heath & Associates, which
includes “testimonials” from clients and professional associates.
22. Heath, O’Brien, and defendants’ other sales agents conduct the
one-on-one sessions with prospective investors. At these sessions, Heath and
O’Brien reiterate that the PCM Notes are “safe” because they are “secured” and
“backed by assets,” and that the returns paid to investors are “guaranteed.”
O’Brien compares the notes to a home mortgage, where the lender can foreclose
on the property if the borrower defaults. Heath and O’Brien also explain that
PCM pools investor funds to make collateralized loans to small and medium-sized
companies, and that PCM is experienced in making these loans and in managing
the loan portfolio for investors. No other use of investor funds is disclosed to
prospective investors.
23. During the one-on-one sessions, Heath and O’Brien also tell investors
that PCM and the investors share in the profits generated by the interest paid on
the loans by the borrowers. They also represent that the PCM Notes mature in two
to six years. Investors, however, are assured that they may redeem all or part of
their principal before maturity subject to a penalty of up to 10%. O’Brien assured
at least one investor that he could get his money out at any time, and that the
amount of the penalty would decrease as his PCM Note matured.
/ / /
- 8 -
24. Some investors purchase the PCM Notes at their first one-on-one
session, while others do so during second or third appointments.
25. Defendants do not provide investors with any offering materials or
financial statements about PCM or the PCM Fund. Some investors have been
given a PCM brochure in connection with their first investment. Other investors
received the brochure years after they invested, and only after asking Heath &
Associates for some information about their investment. This brochure is targeted
at senior citizens, and describes generally that the PCM Notes are secured
corporate notes designed for investors seeking high current monthly income,
capital preservation, and liquidity, and that investors may redeem their PCM Notes
through a “quarterly repurchase program.”
B. The Mechanics Of Investing With Defendants
26. If a prospective investor decides to invest in the PCM Notes through
an IRA account, the investor must open a new IRA account with an IRA
administrator previously selected by Heath & Associates. Once the new IRA is
opened, the investor then transfers funds from his existing IRA account into the
new one, and directs the IRA administrator to purchase the PCM Notes on his or
her behalf. The IRA administrator transfers the investor’s funds to PCM or the
PCM Fund as payment for the PCM Notes. Investors can designate their Heath &
Associates financial consultant as the “Financial Representative” on their new
IRA.
27. If a prospective investor decides to invest non-IRA funds in the PCM
Notes, Heath and O’Brien tell the investor to make out a check to PCM or Private
Capital Management. If the investor does not have funds readily available, Heath
& Associates will help the prospective investor sell other investments to free up
cash to invest in the PCM Notes. In one case, a Heath & Associates financial
consultant wrote a letter by hand to the investor’s annuity company, instructing
that the annuity be sold, and had the investor sign the letter on the spot without
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informing the investor that she would have to pay taxes and fees for liquidating
her annuity.
28. When investors purchase the PCM Notes through an IRA, the funds
are held in the name of the PCM Fund. When investors purchase the PCM Notes
using non-IRA funds, the funds are held in the name of PCM. The defendants,
however, generally do not explain the difference between PCM and the PCM Fund
when describing the investment at the workshops or during the one-on-one
sessions. Some investors did not know whether their funds were invested in PCM
or the PCM Fund until after they gave their money to Heath &Associates and they
received documentation showing how their money was invested.
29. Some investors are given a receipt and asked to sign an “Investments
Agreement,” in which they indicate whether their interest payments are to be paid
monthly or allowed to accrue on account. This Agreement also authorizes Heath
& Associates to act as the “sole servicing agent” for the investment. Some
investors were also asked to sign a PCM “New Account Application.” Neither the
Investments Agreement nor the New Account Application discloses any
information about the PCM Notes.
30. In connection with a non-IRA investment, some investors have
received a promissory note and a security agreement. Others merely have received
a purchase confirmation and receipt reflecting an investment in a “secured
corporate note.”
31. After making their initial investment, investors receive quarterly
account statements either from Heath & Associates or the IRA administrator. The
account statements show both the purported value of the investment, the amount
of interest generated, and any principal or payments that have been made or
interest that has accrued. For IRA investments, the IRA administrator generates
the account statement based on information provided by Heath & Associates.
/ / /
- 10 -
32. Some investors receive their investment returns in monthly payments.
Defendants usually send interest checks to investors at the beginning of each
month.
C. Defendants’ Misrepresentations And Omissions
1. The Defendants Are Operating An Undisclosed Ponzi Scheme
33. While defendants represent that investor funds will be used to make
collateralized loans to businesses, a PPM for the PCM Notes offering dated
November 1, 2002, which Heath provided to Heath & Associates’ IRA
administrators in 2003, states that investor funds will be used to, among other
things, make principal and interest payments to other investors. This PPM was
never disseminated to investors, even though some investors specifically requested
a PPM or any offering materials. Such undisclosed use of investor funds
constitutes a Ponzi scheme.
2. The PCM Notes Are Not Secured
34. Neither PCM, the PCM Fund, nor any of the other defendants have
provided any secured loans to borrowers. No UCC-1 financing statements that
identify PCM, the PCM Fund, or any of the defendants as a secured creditor have
been filed with the State of California or any other state. Nor are Heath &
Associates, PCM, or Private Collateral Management licensed to operate under the
California Finance Lenders Law or the California Residential Mortgage Lending
Act. Even if defendants have used investor funds to make any collateralized
loans, the security interests in the collateral have not been perfected under the
UCC, and consequently, contrary to defendants’ representations, investors’ funds
are not secured or protected.
3. The PCM Notes Are Not Liquid
35. Some investors have been unable to redeem their PCM Notes as
Heath, O’Brien, and defendants’ sales agents have represented. Rather than
honoring redemption requests, Heath & Associates has told some investors that
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the PCM Notes “renew automatically.” At least one investor had to wait five
months to redeem her investment while Heath & Associates purportedly “audited”
her account. O’Brien told one investor that a $50,000 redemption would disrupt
their operations and that they would have to pay him in monthly installments of
$10,000. And when that investor retained an attorney, Heath unexpectedly went
to the investor’s home and tried to convince him that he should not have an
attorney representing him and that he would be better off just leaving things in
Heath’s hands. Other investors could not redeem their investments until they
resorted to threatening or filing a lawsuit. In another case, Heath and O’Brien
flatly denied that the investor could make “premature” redemptions because it was
not “typed” in the PCM Note that the investor received.
4. Defendants Did Not Disclose And Lied About the D & R Orders
36. Defendants failed to disclose to investors that in March 1998, the
DOC issued the D & R Orders against Heath, Heath & Associates, PCM, and the
PCM Fund for engaging in the unregistered sale of securities and for acting as
unregistered broker-dealers. Heath knew about the orders, as he consented to and
signed the stipulation for the entry of the D & R Orders.
37. In early 2003, the IRA administrator used by Heath & Associates at
the time learned that the D & R Orders had been issued. When the IRA
administrator could not obtain assurances from Heath and Heath & Associates that
they were complying with the D & R Orders, the IRA administrator stopped
accepting any new or additional investments in the PCM Notes. As a result, in
March 2003, the IRA administrator sent a certified letter to investors notifying
them of the two D & R Orders. In response, Heath & Associates sent a letter to
the same investors and falsely represented that its future solicitations would
comply with California state securities laws and would be made through NASD
licensed broker-dealers. Defendants never have complied with the D & R Orders,
and continue to be unlicensed, to use unlicensed brokers, and to engage in an
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unregistered offering.
38. In addition, after March 2003, Heath and O’Brien repeatedly
downplayed the significance of the D & R Orders or falsely represented to
investors that they did not apply to the PCM Notes offering. They claimed that
defendants were not selling securities. Heath also told the IRA administrator that
the D & R Orders were unrelated to the PCM Fund, and that they should not have
been on his record, but that it would cost too much to have them “wiped off.”
Heath told an investment adviser, who was trying to get information for an
investor, that the D & R Orders were inapplicable because he was operating under
an exemption as “the issuer” and he was not “brokering the deal.” Similarly,
O’Brien also told investors that the letter from the IRA administrator should not
have been sent to all investors because the D & R Orders only affected
approximately 14 new investments. In addition, O’Brien told at least one investor
that the DOC had issued the D & R Orders because an investor had complained
that she should get her money back because PCM had failed to file a form with the
DOC.
5. The IRA Administrators Did Not Approve The Offering
39. Heath & Associates has used two different IRA Administrators
during the course of the PCM Notes offering. Heath and O’Brien repeatedly have
misrepresented the role that the IRA administrators played in the offering. They
have told prospective and existing investors that the IRA administrators have
performed due diligence for the protection of investors. The two IRA
administrators, however, have never conducted “due diligence” or approved the
PCM Notes in any way.
6. PCM And The PCM Fund Are Not California Business Entities
40. Heath and O’Brien represent to investors that PCM and the PCM
Fund are California legal business entities. O’Brien represented to at least one
investor that PCM is a California corporation. The PPM provided to the IRA
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administrators represents that the PCM Fund is a California limited liability
corporation. Neither representation is true. Neither PCM nor the PCM Fund are,
or have ever been, registered as California legal business entities.
D. Heath’s And O’Brien’s Scienter
41. As the principal officer and control person of defendant entities,
Heath knew, or was reckless in not knowing, that (1) the PCM Notes offering was
an apparent Ponzi scheme because he gave the IRA administrators the PPM and
controlled PCM’s bank accounts; (2) the PCM Notes were not liquid because he
personally participated in tactics designed to delay investors’ liquidations of their
accounts; (3) the PCM Notes were not secured and safe because he did not cause
UCC-1 financing statements to be filed in order to perfect collateralized loans
purportedly made by PCM and the PCM Fund; (4) he failed to disclose the D & R
Orders and misrepresented their applicability to the PCM Notes offering; (5) the
IRA administrators did not conduct “due diligence” on the PCM Notes; and (6)
PCM and the PCM Fund have never been California corporate entities.
42. O’Brien, a Heath & Associates director, also knew, or was reckless in
not knowing, that (1) the PCM Notes are not liquid because he has failed to
disclose to investors that their Notes renew automatically and that “premature”
redemptions are not permitted; (2) the D & R Orders are not disclosed to investors;
and (3) Heath & Associates, Heath, PCM and the PCM Fund are misrepresenting
their compliance with the D & R Orders.
43. As a sales agent offering and selling securities, O’Brien had an
affirmative duty, and was required, to conduct an independent investigation
related to the PCM Notes. Appropriate due diligence would have revealed to him
the true nature of the PCM Notes offering, including the apparent Ponzi scheme,
the lack of liquidity, and the D & R Orders. O’Brien, however, did not conduct
any independent investigation regarding his and other sales agents’ representations
about the PCM Notes to investors. Indeed, O’Brien has admitted to one investor
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that he did not know, nor did he need to know, how investor funds were used.
FIRST CLAIM FOR RELIEF
UNREGISTERED OFFER AND SALE OF SECURITIES
Violations of Sections 5(a) and 5(c) of the Securities Act
44. The Commission realleges and incorporates by reference paragraphs
1 through 43 above.
45. The defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, made use of means or instruments of
transportation or communication in interstate commerce or of the mails, to offer to
sell or to sell securities, or to carry or cause such securities to be carried through
the mails or in interstate commerce for the purpose of sale or for delivery after
sale.
46. No registration statement has been filed with the Commission or has
been in effect with respect to the offerings alleged herein.
47. By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Sections 5(a)
and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
SECOND CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF SECURITIES
Violations of Section 17(a) of the Securities Act
48. The Commission realleges and incorporates by reference paragraphs
1 through 43 above.
49. The defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, in the offer or sale of securities by the use
of means or instruments of transportation or communication in interstate
commerce or by use of the mails:
a. with scienter, employed devices, schemes, or artifices to
defraud;
- 15 -
b. obtained money or property by means of untrue statements of a
material fact or by omitting to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
c. engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the
purchaser.
50. By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Section 17(a)
of the Securities Act, 15 U.S.C. § 77q(a).
THIRD CLAIM FOR RELIEF
FRAUD IN CONNECTION WITH THE
PURCHASE OR SALE OF SECURITIES
Violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder
51. The Commission realleges and incorporates by reference paragraphs
1 through 43 above.
52. The defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, in connection with the purchase or sale of a
security, by the use of means or instrumentalities of interstate commerce, of the
mails, or of the facilities of a national securities exchange, with scienter:
a. employed devices, schemes, or artifices to defraud;
b. made untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading; or
c. engaged in acts, practices, or courses of business which
operated or would operate as a fraud or deceit upon other
- 16 -
persons.
53. By engaging in the conduct described above, each of the defendants
violated, and unless restrained and enjoined will continue to violate, Section 10(b)
of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R.
§ 240.10b-5.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that the defendants committed
the alleged violations.
II.
Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d),
temporarily, preliminarily, and permanently enjoining the defendants and their
officers, agents, servants, employees, and attorneys, and those persons in active
concert or participation with any of them, who receive actual notice of the order or
judgment by personal service or otherwise, and each of them, from violating
Sections 5(a), 5(c), and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c),
and 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and
Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
III.
Issue, in a form consistent with Fed. R. Civ. P. 65, a temporary restraining
order and a preliminary injunction freezing the assets of each of Heath, Heath &
Associates, the PCM Fund, PCM, and Private Collateral Management, appointing
a receiver over Heath & Associates, the PCM Fund, PCM, and Private Collateral
Management, prohibiting each of the defendants from destroying documents, and
requiring accountings from each of the defendants.
/ / /
/ / /
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IV.
Order each defendant to disgorge all ill-gotten gains from their illegal
conduct, together with prejudgment interest thereon.
V.
Order each defendant to pay civil penalties under Section 20(d) of the
Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15
U.S.C. § 78u(d)(3).
VI.
Retain jurisdiction of this action in accordance with the principles of equity
and the Federal Rules of Civil Procedure in order to implement and carry out the
terms of all orders and decrees that may be entered, or to entertain any suitable
application or motion for additional relief within the jurisdiction of this Court.
VII.
Grant such other and further relief as this Court may determine to be just
and necessary.
DATED: April 27, 2004 s/ Jose F. Sanchez
JOSE F. SANCHEZ
DAVID S. BROWN
CAMMY C. DUPONT
Attorneys for Plaintiff
Securities and Exchange Commission
2004-01-30
Two sons of former Sheriff Floyd Tidwell involved
Nineteen charged in bail bonds investigation
Two sons of former Sheriff Floyd Tidwell involved
By JAMES RAMAGE/Staff Writer
VICTORVILLE — Two sons of former Sheriff Floyd Tidwell were among 19 county bail agents and others charged Thursday by the San Bernardino County District Attorney's Office for extortion, solicitation of bail by jail inmates and insurance code violations.
Charges were filed against bail agents, notaries public, an attorney and several inmates, according to the San Bernardino County District Attorney's Office.
The charges follow two years of in-depth investigation by the San Bernardino County Sheriff's Department and the California Department of Insurance into county bail agents' businesses, the District Attorney's office said.
The investigation followed complaints by competing bail agents and inmates claiming they were pressured into hiring certain bail businesses, said Deputy District Attorney Cheryl Kersey of the Major Crimes Unit.
Those charged were affiliated with Boone's Bail Bonds and Tidwell's Bail Bonds in Fontana, West Valley Bail Bonds in Ontario and Jerry Brandt Bail Bonds in Highland, sheriff's officials said.
Former sheriff's deputy Daniel Tidwell of Phelan was also charged with possessing two assault weapons plus stealing a shotgun and a rifle while serving as a deputy, in addition to the charges of illegal business practices, Kersey said.
Tidwell's brother, bail agent Steve Tidwell of San Bernardino, was also charged, Kersey said.
Notary Public Shirley Tidwell of Phelan has been accused of certifying documents without having witnessed them, contrary to the requirements of her office, Kersey said.
Conspiracy to solicit bail by inmates and bail agents is a violation of the California Insurance Code, according to the District Attorney's Office.
The District Attorney's Office also accused Rancho Cucamonga attorney Geoffrey Newman of paying bail agents and inmates to solicit clients for him — collectively described as solicitation of a crime and attorney capping charges — Kersey said.
"It's something that needed to be looked into," Kersey said.
Seven of the 19 charged were sent letters to appear for arraignment on Feb. 18, the District Attorney's Office reported, while the other 12 had warrants issued for their arrest.
Further charges may be filed against other individuals and bail businesses during the ongoing investigation, Kersey said.
James Ramage can be reached at james_ramage@link.freedom.com or 951-6242.
Two sons of former Sheriff Floyd Tidwell involved
By JAMES RAMAGE/Staff Writer
VICTORVILLE — Two sons of former Sheriff Floyd Tidwell were among 19 county bail agents and others charged Thursday by the San Bernardino County District Attorney's Office for extortion, solicitation of bail by jail inmates and insurance code violations.
Charges were filed against bail agents, notaries public, an attorney and several inmates, according to the San Bernardino County District Attorney's Office.
The charges follow two years of in-depth investigation by the San Bernardino County Sheriff's Department and the California Department of Insurance into county bail agents' businesses, the District Attorney's office said.
The investigation followed complaints by competing bail agents and inmates claiming they were pressured into hiring certain bail businesses, said Deputy District Attorney Cheryl Kersey of the Major Crimes Unit.
Those charged were affiliated with Boone's Bail Bonds and Tidwell's Bail Bonds in Fontana, West Valley Bail Bonds in Ontario and Jerry Brandt Bail Bonds in Highland, sheriff's officials said.
Former sheriff's deputy Daniel Tidwell of Phelan was also charged with possessing two assault weapons plus stealing a shotgun and a rifle while serving as a deputy, in addition to the charges of illegal business practices, Kersey said.
Tidwell's brother, bail agent Steve Tidwell of San Bernardino, was also charged, Kersey said.
Notary Public Shirley Tidwell of Phelan has been accused of certifying documents without having witnessed them, contrary to the requirements of her office, Kersey said.
Conspiracy to solicit bail by inmates and bail agents is a violation of the California Insurance Code, according to the District Attorney's Office.
The District Attorney's Office also accused Rancho Cucamonga attorney Geoffrey Newman of paying bail agents and inmates to solicit clients for him — collectively described as solicitation of a crime and attorney capping charges — Kersey said.
"It's something that needed to be looked into," Kersey said.
Seven of the 19 charged were sent letters to appear for arraignment on Feb. 18, the District Attorney's Office reported, while the other 12 had warrants issued for their arrest.
Further charges may be filed against other individuals and bail businesses during the ongoing investigation, Kersey said.
James Ramage can be reached at james_ramage@link.freedom.com or 951-6242.