Securities and Exchange Commission v. James C. Mulholland, Jr. and Thomas S. Mulholland, Civil Action No. 12-cv-14663 (E.D. Mich., filed October 22, 2012)
SEC Charges Two in Michigan-based Fraudulent Securities Offering
The Securities and Exchange Commission recently announced that it filed a civil injunctive action against brothers James Mulholland and Thomas Mulholland accusing them of conducting a fraudulent, unregistered offer and sale of approximately $2 million in securities.
The SEC’s complaint, filed in U.S. District Court in Detroit, alleges that the Mulhollands operated a real estate business which involved buying, maintaining, and renting residential real estate in Michigan. The SEC’s complaint alleges that to finance the real estate business, the Mulhollands raised money from individual investors residing in Michigan and Florida through the offer and sale of securities in the form of demand notes. Beginning in at least January 2009, however, the Mulhollands’ real estate business began to experience financial difficulties. The Mulhollands continued to raise money from investors and from January 2009 through January 2010, they raised approximately $2 million from approximately 75 investors. The Mulhollands told these investors that their real estate business was profitable, they would earn 7% per year on their investment, the returns would be generated by profits of the real estate business, and that the investors could get their money back upon 30 days’ written notice.
The SEC’s complaint alleges that the Mulhollands statements to investors were false and/or misleading. The real estate business was losing money during this period, needed new investor funds to pay its bills and to pay interest to previous investors, and did not have the means to refund investors’ principal within 30 days even if a small number of them asked for their money back. The Mulhollands concealed their perilous financial condition from investors. The Mulhollands never told investors that they were experiencing financial hardship, that they were having difficulty meeting financial obligations critical to the real estate operation, or that they were contemplating filing for bankruptcy.
The SEC’s complaint charges the Mulhollands with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking against the Mulhollands a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest to be paid jointly and severally, and civil monetary penalties.