FOR IMMEDIATE RELEASE
Oct 3 2001
Contact: Spence Jackson, (573) 751-4951

Blunt Launches Statewide Crackdown On Investment Fraud; Puts Con Artists On Warning with Blitz of Prosecution

Missouri Investors Have Lost Millions of Dollars


Secretary Blunt said: "One of my first decisions as Secretary of State was to direct that we upgrade our enforcement against securities fraud. Under the leadership of Doug Ommen, our new Securities Commissioner, this office has moved against firms and individuals violating our securities laws.  My message to con artists in Missouri is, ‘This office is going to prosecute you to the fullest extent of the law. Investment scams will get nothing but grief in Missouri.’ The cases announced today are major actions, but are only part of the ongoing consumer protection effort by Commissioner Ommen and his enforcement staff in my office. I am grateful for the assistance that the Attorney General and local Missouri prosecutors have provided to help send the message that these illegal business practices will not be tolerated in Missouri."

The new cases announced today focus on insurance agents who have offered or sold unregistered securities to Missourians. Unlawful sales by insurance agents, either intentional or unknowing, represent a significant national issue for state enforcement agencies. Because of the fundamental differences between insurance and investment products, it is rare for insurance agents to be licensed to sell securities. Violations by a small number of agents can do great harm to investors, as the new push in this area has shown.

Blunt has authorized administrative, civil and criminal prosecutions to combat investment frauds being perpetrated by some insurance agents on Missouri citizens.  In cooperation with the Missouri Attorney General and local prosecutors, three cases have been filed against insurance agents in Springfield, Kansas City and St. Joseph.  In addition, the Securities Division has issued six cease and desist orders this week against insurance agents throughout Missouri for offering and selling unregistered securities. The total number of cease and desist orders, and other legal actions, against suspect securities offerings is 37 since January.

In each of the actions, Blunt’s Securities Division provided assistance, support, and technical advice to prosecutors.  In one case, Missouri Securities Commissioner Doug Ommen was sworn in as an assistant prosecutor, and will lead the case. Here is a summary of the cases filed this week and the related administrative actions taken this year by the securities division of Blunt’s office:

SPRINGFIELD.

·        On October 2, a 26-count felony complaint was filed against Larry K. Gaither of Springfield by Greene County Prosecutor Darrell Moore and Commissioner Ommen.  The complaint alleges that Gaither was not licensed to sell securities and he sold more than $350,000 worth of unregistered investments in his own business, Gaither Financial Group, to at least 11 different Missouri residents. Gaither is also charged with 8 counts of securities fraud.  The state also alleges that Gaither:

o       Made untrue statements that the investor’s money would be used for real estate funding, but he actually used the money for his own personal use and the benefit of members of his family;

o       Made untrue statements that the subscription agreement was secured and guaranteed by a promissory note from New Horizons Trust, when in fact, New Horizons Trust was not in any manner regulated, supervised or registered with any state or federal agency, nor insured by any institution or entity with assets to guarantee repayment;

o       Omitted material facts including the fact that Gaither’s application for registration as a securities agent had been denied by the Securities Division in 1994; and

o       Employed a device, scheme or artifice to defraud investors by using proceeds from the sale of investments to return principal and interest to earlier investors for the purpose of creating the façade that the business operations of Gaither Financial Group and New Horizons Trust were successful, when in fact, Gaither had unsuccessfully demanded a return of funds from New Horizons Trust on June 4, 1999, but continued to sell investments.

·        On October 2, Secretary Blunt issued cease and desist orders against Stanley Helvey of Springfield and Terry L. Sutton of Nixa for selling customer-owned, coin-operated telephones through Alpha Telcom, Inc. without proper registration or granted exemption for securities.  After Alpha Telcom filed for bankruptcy in Florida in August, 2001, the Securities and Exchange Commission filed a complaint freezing all assets alleging that Alpha Telcom participated in a $100 million Ponzi-like scheme.

·        In April, Blunt issued a cease and desist order against Michael Levan Woods of Springfield for selling customer-owned, coin-operated telephones through Phoenix Telecom, L.L.C. and at least one equipment-leasing investment without proper registration or granted exemption for these types of transactions.  The Securities and Exchange Commission last year filed a complaint against Phoenix Telecom and its principals alleging, among other things, that Phoenix Telecom had sold securities in a "massive fraudulent scheme," raising more than $74 million from over 2,000 mostly elderly investors. Subsequent to the SEC’s complaint, a receiver was appointed for Phoenix Telecom and all of its assets were frozen.

 

KANSAS CITY

·        On October 3, Attorney General Jay Nixon and Secretary Blunt filed a civil lawsuit against Karl Hanke III of Kansas City seeking injunctions, disgorgement of profits, restitution for investors and civil penalties.  Hanke was not licensed to sell securities and he sold unregistered investments in coin-operated, customer-owned payphones.  The payphone investments sold by Hanke were created by ETS Payphone, Inc. of Georgia.  Hanke sold more than $2 million to at least 36 Missouri investors directly and through his company Dayspring Financial Inc.  ETS Payphones, Inc. has been sued by the federal Securities and Exchange Commission for fraud. The Attorney General has alleged Hanke engaged in securities fraud and violations of the consumer protection laws.  The state has alleged that Hanke:

o       Misrepresented that he had personally invested his own funds in ETS Payphones;

o       Misrepresented that the investments were insured and guaranteed; and

o       Misrepresented that investors only had “a couple of days left to invest in ETS,” when in fact he continued to solicit investors.  

·        On October 2, Blunt issued a cease and desist order against Phillip L. Helton d/b/a Helton Insurance Agency of Trenton, Missouri for selling customer-owned, coin-operated telephones through ETS Payphones, Inc. without proper registration or granted exemption for securities.  Last year ETS filed for bankruptcy and the Securities and Exchange Commission filed a complaint against ETS and its principals alleging, among other things, that ETS had sold securities in a "massive fraudulent scheme," raising more than $300 million from over 10,000 investors. Subsequent to the SEC’s complaint, a receiver was appointed for ETS and all of its assets were frozen.  Helton Insurance allegedly sold approximately $1,232,000 of these investments to 31 Missouri citizens.

·        On September 14, an action to revoke the securities license of a St. Joseph businessman was filed by Attorney General Nixon on behalf of Secretary Blunt in Jefferson City with the Administrative Hearing Commission.  Matthew A. Mikesch, who still holds an insurance license, sold unregistered securities without the knowledge or approval of his securities broker-dealer, NYLIFE Securities Inc., totaling more than $580,000 to at least twelve Missouri residents. The investments sold by Mikesch were fixed rate investment notes issued by First American Capital Trust.  This company has been in bankruptcy since September, 1999.

ST. LOUIS

·        On October 2, Secretary Blunt issued cease and desist orders against James A. Bayer of St. Louis, James W. Boyd of Chesterfield, and Lowell Roth of O’Fallon, Missouri for selling customer-owned, coin-operated telephones through Alpha Telcom, Inc. without proper registration or granted exemption for securities.  As mentioned above, after Alpha Telcom filed for bankruptcy in Florida in August, 2001, the Securities and Exchange Commission filed a complaint freezing all assets alleging that Alpha Telcom participated in a $100 million Ponzi-like scheme.  Mr. Bayer sold Alpha Telecom payphone investments totaling $385,000 to at least 26 Missouri residents.  Boyd and Roth sold $55,000 and $35,000 respectively.

·        In March, Blunt issued cease and desist orders against Kurt Barwick of Arnold for selling customer-owned, coin-operated payphones issued by ETS Payphones, Inc. and William C. Koon of Potosi for selling customer-owned, coin-operated telephones through Phoenix Telecom.

Prosecution Assistance

The Missouri securities division has referred other cases to local, state or federal prosecutors, or assisted other law enforcement agencies in other cases involving insurance agents selling similar fraudulent investments.  Here is summary of cases involving insurance agents selling unregistered, high risk or fraudulent investments pending in state and federal courts brought about in part, by actions taken by the securities division:

  • In June, Paul David Anderson, of Lee’s Summit was indicted by a federal grand jury and is being prosecuted by the U.S. Attorney in Kansas City for selling more than $1 million in high-risk investments to 22 of his clients, most of whom were elderly, and pocketing most of the proceeds for himself.
  • In April, William Glynn Robinson, of Cape Girardeau, was charged by the Cape Girardeau Prosecuting Attorney for selling unregistered investments totaling more than $700 to at least one Missouri resident.
  • In April, Albert L. Noyes was indicted by a state grand jury and the Cass County Prosecutor is prosecuting 14 counts of felony securities violations in connection with Noyes’ sale of more than $180,000 in unregistered securities to at least five Missouri residents since 1996.
  • In March, Roy G. Harris of Springfield was arrested and charged by the Attorney General’s Office with diverting investors’ funds for private use.  At least three Missouri residents invested approximately $262,500 through Harris and his business Midwest Investment Services Inc.  Harris allegedly told investors they could make millions of dollars at low risk on purchase of stock in Argent Capital Corporation of Nashville, Tennessee.  Harris also told investors they could have their funds returned at any time.

Secretary Blunt praised the work of the securities division of his office, the Attorney General’s office,

and prosecutors.   He also issued a caution to Missouri investors:

"Investors should be very wary of investments being sold by insurance agents or others who lack the training, qualification and registration of a securities agent.  Insurance agents are qualified to sell insurance products, but many are either intentionally or carelessly selling investments that are resulting in huge losses for our citizens."

"When someone solicits you as a potential investor, always call the Securities Division in my office to check on the credentials of the salesperson.  To investigate an investment or salesperson, contact our Investor Hotline at (800) 721-7996."

The filing of criminal charges is merely an accusation, and the defendant is presumed innocent unless and until proven guilty.