SEC Files Another Investment Fund Fraud Lawsuit

SEC Files Another Investment Fund Fraud Lawsuit

Investment fund frauds continue to be a staple of SEC enforcement. This week the Commission filed another of these actions. The defendants are a former representative of a registered investment adviser and a licensed realtor. SEC v. Dearman, Civil Action No. CV-553 (N.D. Okla. Filed August 27, 2013).

The action names as defendants Larry Dearman and Marya Gray. Mr. Dearman was a representative of a Commission registered investment Adviser from November 1, 2003 until August 24, 2012 when he was terminated. Ms. Gray is a licensed realtor in Oklahoma. She is the majority owner and President of Bartnet Wireless Internet, Inc.and the sole owner of The Property Shoppe, Inc. and Quench Buds Holding Company, LLC. Each of the entities is named as a relief defendant.

From December 2008 through August 2012 the defendants raised about $4.7 million from more than 30 investors. In soliciting the funds Mr. Dearman told investors that their investment would be placed in various entities owned or controlled by Ms. Gray. A variety of misrepresentations and omissions were used to induce investors to part with their hard earned cash. For example, those who invested in Bartnet were told that the firm was a growing internet company that required additional funds to purchase transmission towers and equipment. About $1.7 million was raised for the firm which lacked the ability to repay the promissory notes purchased. Portions of the investor money raised were used to make interest payments on the notes.

Another $2 million was raised in a second scheme for The Property Shop. The purpose of this investment was to purchase repossessed homes or other properties and then flip them for profit. Investors were not told that the company was in grave financial condition. The investor funds were not used for that stated purpose.

Finally a third scheme centered on Quench Buds. Investors were told it was a successful business and would provide a safe investment. Neither point was true. The statements were misrepresentation.

Mr. Dearman was largely responsible for soliciting the funds. Many of the clients had known Mr. Dearman for years, through his church and as a popular local wedding singer. Ms. Gray also played a key role. Much of the investor money went into accounts that she controlled.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 22789 (August 27, 2013). 

For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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