USA: SEC moves against alleged prime bank fraud

On December 19, 2002, the Securities and Exchange Commission filed a securities fraud case in the United States District Court for the Central District of California charging a William R. Kerr of Los Angeles, a former stockbroker and his California company, China Investment Group, Ltd., a British Virgin Islands corporation headquartered in Los Angeles, with promoting a fraudulent "prime bank" investment scheme.
According to the complaint, Kerr induced more than sixty investors throughout the United States, as well as in Canada, to invest over $12 million in his fraudulent investment programme that he falsely promised would yield exorbitant returns within a matter of weeks or months. The complaint goes on to allege that, in furtherance of this scheme, Kerr posed as a wealthy, politically connected businessman and made numerous false and materially misleading representations to his investor victims and to various intermediaries who he knew would echo his false claims to other investor victims.

These false and materially misleading representations, according to the complaint, included claims (i) that Kerr had control of a $200 million trust; (ii) that Kerr could use the trust as leverage to trade in medium term bank notes ("MTNs"); (iii) that this MTN trading would yield profits of more than 13,000% of the amount invested; (iv) that Kerr's company, CIG, conducted the MTN trading; (v) that the World Bank supported Kerr's trading programme; and (vi) that Kerr's investment programme was safe and was backed by Kerr's personal guarantee. Further, the complaint alleges that, instead of investing his victims' funds as he had represented, Kerr misappropriated it, and failed to return either profits or principal to his investor victims.

The Commission's complaint charges both defendants with securities fraud, sale of unregistered securities, and acting as an unregistered broker-dealer, in violation of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rule 10b-5. The Commission is seeking injunctions, disgorgement of ill-gotten gains (with interest), and civil penalties against both defendants.

In a related matter, the United States Attorney's Office for the Central District of California announced Kerr's agreement to enter a guilty plea to mail fraud and securities fraud charges stemming from the same fraudulent scheme that is the subject of the Commission's complaint. The Commission's related case against four Virginia unregistered brokers who solicited investor victims for Kerr's fraudulent programme as well as other, similar fraudulent programmes, announced previously, is pending.