International Law

Asset Recovery and Management Trust Prime Bank Fraud

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From the SEC Press Release on Asset Recovery and Management Trust

The Securities and Exchange Commission announced today that it recently obtained judgments against three defendants in a previously filed case alleging that the defendants operated a prime bank fraud under the name Asset Recovery and Management Trust ("Armtrust") that defrauded hundreds of investors of more than $1.21 million.

On January 27, 2009, the U.S. District Court for the Middle District of Alabama entered judgment against defendant Milton J. Vaughn, after granting the Commission's motion for summary judgment, requiring him to pay over $3.3 million in disgorgement of ill-gotten gains plus prejudgment interest and civil penalties. The Court also entered a default judgment the same day against defendant Armtrust requiring that it pay over $2.4 million in disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. In addition, on November 3, 2008, the Court entered a judgment by consent against the estate of defendant Frank R. Johnson, who passed away in 2006. The judgment against Johnson's estate holds it liable for disgorgement of over $1.5 million of ill-gotten gains plus prejudgment interest, but waives payment of all except $31,855, which represents the only assets remaining in the estate. Finally, also on November 3, 2008, the Court granted the Commission's motion to dismiss the charges against a fourth defendant, Carlos F. Alfaro.

The Court's recent actions conclude the Commission's case against all defendants in this case.

According to the Commission's Complaint, filed on December 16, 2002, from at least 1999 through 2000, Vaughn and Johnson, operating through Armtrust, an offshore entity they created, defrauded several hundred investors by luring them into participating in a fraudulent Prime Bank trading scheme that sold interests in fictitious, high yield offshore trading programs.

The Commission's Complaint alleges that Armtrust purported to offer two things:

(1) A recovery services in which Armtrust would attempt to recover lost or stolen funds for people who had invested in other Prime Bank trading programs, and

(2) investments in Armtrust's own supposed high yield, offshore trading programs.

The Complaint alleges that Armtrust=s strategy was to lure victims of prior Prime Bank schemes by giving them hope of recouping the funds they lost in past scams and, then, induce them into investing in Armtrust's own scheme.

According to the Complaint, Armtrust falsely led investors to believe they could earn between eight and 15 times their original investment in a matter of months and also guaranteed that the investors' principal was Afully secured" and never at risk.

The Complaint alleged, however, that Armtrust's trading programs never really existed, and when investors attempted to recoup their investments, Armtrust refused to provide the purported profits.

The Court's judgments provide that:

Armtrust is: permanently enjoined from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Exchange Act"); ordered to pay a civil monetary penalty of $300,000; and ordered to pay disgorgement of $1,210,000 in ill-gotten gains plus prejudgment interest of $960,150.78.

Vaughn is: permanently enjoined from violating Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act; ordered to pay a civil monetary penalty of $1,210,000; and ordered to pay disgorgement of $1,210,000 in ill-gotten gains plus $960,150.78 in prejudgment interest.

The Estate of Frank R. Johnson is held liable for disgorgement of $900,000 in ill-gotten gains plus $657,786 in prejudgment interest, except that payment of all of this amount except for $31,855 is waived due to a demonstrated inability to pay.

In addition to the Commission's charges, the Alabama Securities Commission brought related criminal charges against Vaughn, Johnson, and Alfaro in December 2004 and January 2005.

Those charges were subsequently dismissed at the request of the Alabama Securities Commission.

The SEC acknowledges the assistance and cooperation of the Alabama Securities Commission and the United States Attorney's Office for the Middle District of Alabama in this matter. 

Full post as published by Misleading Advertising Law on January 29, 2009 (boomark / email).