Thursday, April 12, 2007

Stock Fraud of the Day (Salt Lake City Edition)

To do my part to fight the media-neglected epidemic of securities fraud, I'll be regularly posting items from the daily avalanche of stock fraud enforcement actions. I'll continue until the end of time or until I lose interest, whichever comes first.

Today's comes from the national headquarters of stock fraud, which is of course Salt Lake City, Utah. The SEC litigation release can be found here. The lead defendants are Novus Technologies, LLC, Ralph W. Thompson, Jr., Duane C. Johnson, RCH2, LLC, and Robert Casey Hall.

In this case, the fraud involved not public company shares but something that's even better-- promissory notes and joint venture agreements.

The complaint alleges the defendants have obtained investments of at least $4.8 million from the fraudulent unregistered sale of short-term promissory notes and joint venture agreements from at least 50 investors. It is alleged that Novus and RCH2 have made offers and sales through: the Internet, referrals from current investors and sales presentations at a Salt Lake City shopping mall. Both Novus and RCH2 allegedly have sold six month promissory notes providing for returns to investors of between 3% and 5% per month.

The complaint further alleges that Novus and RCH2 have been telling investors this opportunity is "too good NOT to be true." Novus and RCH2 allegedly claim they invest client funds in hard money lending, real estate, S&P 500 options, foreign currency futures and stocks. Novus and RCH2 also allegedly represent to investors that 80% of investor funds are placed in low risk investments such as real estate with only 20% of the funds invested in high risk investments such as currency futures. Investors are also allegedly told the funds are 100% safe because they are pooled in a large interest-bearing account. It is further alleged that Novus and RCH2 have told investors their funds are backed by liquid assets or real estate and sufficient funds are maintained to cover six months worth of interest and principal.
In fact, the SEC says, all this was fibbing.

One interesting aspect of these allegations, not mentioned in the litigation release but noted in the complaint, is that one of the defendants was a "Small Business Relationships Manager" at JP Morgan Chase. He quit after an internal investigation by the firm, which had discovered what was going on and caused the whole thing to unravel.

Also interesting is that the feds acted with uncommon swiftness, as did Chase, as this alleged scheme commenced in August 2006 and was shut down just three months later, according to the complaint.

These are all just allegations, I should point out. None of the defendants has been found liable for any of this stuff.

© 2007 Gary Weiss. All rights reserved.


Wall Street Versus America was published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site,


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