South Florida Arbitration & Litigation Lawyer Blog
January, 2012:
Affinity Fraud has a devastating effect not only on the individuals that are defrauded but also affects the core beliefs of the individuals that makeup the targeted group, in this case members of the Church of Jesus Christ of Latter Day Saints.
Securities and Exchange Commission v. Kevin J. Wilcox, Jennifer E. Thoennes, and Eric R. Nelson, Civil Action No. 2:11-cv-01219-DN (D. Utah, December 29, 2011).
SEC CHARGES THREE INDIVIDUALS FOR THEIR ROLE IN $16 MILLION PONZI SCHEME
Recently, the Securities and Exchange Commission filed a civil fraud action against Kevin J. Wilcox, Jennifer E. Thoennes, and Eric R. Nelson for their role in a $16 million Ponzi scheme operated by Joseph Nelson. The SEC previously charged Joseph Nelson and others involved in the scheme.
The SEC’s complaint, filed in the U.S. District Court for the District of Utah, alleges that from at least June 2005 through June 2010, Joseph Nelson and his associates, including at various times Wilcox and Thoennes, solicited at least $16 million from more than 100 persons to invest in promissory notes offered by Joseph Nelson’s companies. Joseph Nelson, Wilcox, and Thoennes told investors – many of whom are fellow members of the Church of Jesus Christ of Latter Day Saints (“LDS”) that Nelson identified and targeted through church connections and during church functions – that Joseph Nelson and his companies were engaged in the business of purchasing “merchant portfolios” of credit card processing accounts, holding them for a certain period of time, and then selling them for a profit to financial institutions, such as banks.
According to the SEC’s complaint, Joseph Nelson, Wilcox, and Thoennes lured investors by offering extraordinary rates of return. Most investors were given promissory notes promising returns of 14% to 60% on an annualized basis and additional premium of 20% to 60% at maturity. Some investors were simply told that they would double their money.
The SEC alleges that Joseph Nelson and his companies never purchased or sold a single merchant portfolio. The money invested with Joseph Nelson and his companies was instead used by Nelson to make incremental payments to investors in a Ponzi-scheme fashion, to pay his associates, including Wilcox and Thoennes, and to pay his own lavish personal expenses, as well as those of other family members.
The SEC’s complaint alleges that between May 2008 and July 2010, Wilcox raised and helped to raise approximately $3 million from at least 11 people. Between August 2009 and January 2010, Thoennes raised and helped to raise at least $1.5 million from at least 4 persons, and solicited investments from at least 15 other individuals who did not invest with the Nelson companies.
The SEC’s complaint also alleges that Eric Nelson, Joseph Nelson’s brother, created fictitious documents that Joseph Nelson and his associates used to mislead investors into believing that Joseph Nelson and his companies were engaged in the business of buying and selling merchant credit card portfolios. In addition, the SEC claims that Eric Nelson created fictitious bank account statements reflecting balances in his brother’s accounts that were far in excess of the actual amounts in those accounts, which deceived investors about the continued viability of Joseph Nelson and his companies.
The SEC’s complaint charges that Wilcox, Thoennes, and Eric Nelson each violated and aided and abetted violations of the antifraud provisions of the federal securities laws – Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also alleges that Wilcox and Thoennes violated the broker-dealer and securities registration provisions of the securities laws – Sections 5(a) and 5(c) of the Securities Act, and Exchange Act Section 15(a). The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties against Wilcox, Thoennes, and Eric Nelson.
The SEC’s previously filed action against Joseph Nelson and others is pending in the U.S. District Court for the District of Utah. See Litigation Release No. 21570 (June 25, 2010). Wilcox and Eric Nelson were named as relief defendants in that action.