UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 15536 / October 20, 1997
Securities and Exchange Commission v. Gary W. Berus, Patricia S. Gale,
Robert W. Harper and Nancy A. Swoffer, (United States District Court for
the Eastern District of Michigan, Civil Action No. 96-CV-74524)
The Securities and Exchange Commission announced that on October 3,
1997, Judge Nancy G. Edmunds of the United States District Court for the
Eastern District of Michigan entered an Order of Permanent Injunction
(Order) against Patricia S. Gale (Gale) enjoining her from further
violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities
Act of 1933, Sections 10(b), 15(a)(1) and 15(c)(1) of the Securities
Exchange Act of 1934 and Rules 10b-5 and 15c1-2 promulgated thereunder and
ordering disgorgement in the amount of $39,939.29, including prejudgment
interest, and civil penalties. The Court will set the specific amount of
civil penalties in a subsequent hearing. However, since Gale has filed for
bankruptcy in the United States District Court for the Eastern District of
Michigan, the Commission will not seek to enforce the obligation of Gale to
pay disgorgement or civil penalties except in accordance with the United
States Bankruptcy Code. Gale consented, without admitting or denying the
allegations in the Commission's complaint, to the entry of the Order.
The Complaint, filed on September 30, 1996, alleged, among other
things, that during the period from 1990 through 1994, Gale, as one of two
salespersons for two promoters, participated in a scheme whereby a total of
approximately 120 investors were defrauded through the offer and sale of
over $3 million in securities. Specifically, Gale offered and sold
fictitious certificates of deposit (CDs) issued by a purported
international bank, Century Security Bank and Trust, Ltd. (Century
Security). Furthermore, in two separate scams, Gale sold interests in two
investment clubs, the profit masters Group (profit masters) and Meca
International, Inc. (Meca).
In connection therewith, Gale told CD investors that they were
purchasing variable rate CDs issued by a legitimate bank, with their money
to be used by Century Security to finance various business ventures. The
CDs were portrayed as safe investments with significant rates of returns.
Investment club investors were told that their funds would be pooled to
purchase common stocks. Depending on the investment scam, investors were
promised annual returns ranging from 8% to 24%. As a result, investors
were persuaded to sell legitimate, conservative investments to finance
their Century Security, profit masters and/or Meca investments.
However, Gale never conducted any investigation into the accuracy of
the above representations regarding Century Security, profit masters or
Meca, but instead simply reiterated the promoters' representations. In
reality, Century Security, Profit
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Masters and Meca were operated as three separate "ponzi" schemes. In each
of the three schemes, investor money was deposited into brokerage accounts,
bank accounts and a credit union account, all of which were controlled by
the promoters. Undisclosed to investors, the promoters then used investor
funds to pay personal and business expenses, to make payments to prior
investors and to unsuccessfully trade in speculative investments, including
commodity futures and options. Consequently, returns to existing investors
were dependent upon the ability of the promoters to continually raise
additional funds from new investors. Furthermore, in contravention to
Gale's representations, Century Security was not even a legitimate banking
operation. Finally, Gale failed to disclose to investors the commissions
she received from the sale of the above investments. Thus, in connection
with the offer, purchase and sale of securities, misrepresentations and
omissions of material fact were made regarding the legitimacy of the
investments, the returns to be expected, the risks involved, the
commissions received and the use of investor proceeds.
ENALTIES UNDER THE
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