Firm Settles SEC Suit Over Alleged Fund Fraud : Courts: Unidentified corporate investors were said to have sought $18.6 million in loans from brokerage firms, using falsely valued shares as collateral.
The Securities and Exchange Commission on Tuesday filed and settled a federal suit against a Los Angeles-based investment company accused of fraudulently creating mutual funds that were used as collateral in loan applications.
The SEC said it filed the complaint in U.S. District Court in Los Angeles against Public Funding Group Inc. and its owner, V. Thayne Whipple II, and two mutual funds managed by them--American Vision Funds Inc. and Public Funding Portfolios Inc.
The suit alleged that Whipple’s company did not sell shares in the mutual fund to individuals among the public. Instead, about 40 “alleged corporate investors”--firms with little or no assets--obtained shares of the mutual funds in exchange for unrated and unmarketable promissory notes, said Lori A. Richards, a Los Angeles-based SEC enforcement official.
The suit said some unidentified corporate investors then sought $18.6 million in loans from brokerage firms, using shares of the mutual funds as collateral. However, the suit said there was no reasonable basis for the advertised valuations of the mutual fund stock--$20.50 per share for American Vision and $15.76 a share for Public Funding. The suit alleges that the funds were fraudulently created in late December, 1991.
Richards said Whipple and Public Funding Group--without admitting or denying guilt--agreed to settle the suit by dissolving the mutual funds within 30 days and paying penalties in an amount to be determined. Whipple was not immediately available for comment.
Richards said the SEC has not yet determined if any brokerage firms made any loans using the funds as security. If brokers suffered any losses, restitution would also be required under the settlement, she said.
“This was a very unusual scheme,” Richards said. “If he (Whipple) made any money from this, he’ll have to pay it back.”
