U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23383 / October 8, 2015
Securities and Exchange Commission v. Allen Ross Smith, Civil Action No. 1:14-cv-192 (D.N.H.)
SEC Wins Summary Judgment Against Lawyer and "Paymaster" in Advance Fee Investment Scheme
The Securities and Exchange Commission today announced that Judge Paul Barbadoro of the United States District Court for the District of New Hampshire entered summary judgment in favor of the Commission on its claims against Florida lawyer Allen Ross Smith for his role in an advance fee investment scheme involving prime bank transactions and overseas debt instruments.
On July 2, 2015, the Court found that Smith violated the antifraud and securities registration provisions of the federal securities laws. The Court granted the Commission’s requests for permanent injunctions and disgorgement against Smith, but declined at that time to impose a civil penalty against him. On October 1, 2015, the Court granted the Commission’s renewed motion for a civil penalty, ordering Smith to pay a penalty equal to his ill-gotten gains.
The Commission’s complaint and summary judgment motion alleged that, beginning in January 2011 and continuing through December 2011, Smith, leveraging his title and position as an attorney, made several false and misleading statements to investors in connection with a fictitious offering made by Switzerland-based Malom Group AG, including statements concerning Malom’s financial strength and history of success. At least three investors entered into transactions with Malom after having received Smith’s misstatements about Malom. These investors collectively lost $2.1 million.
The Commission also alleged that Smith assisted Malom by allowing it to use his attorney escrow account to collect approximately $2.44 million in investor funds as its “paymaster.” Smith then followed Malom’s direction to distribute those funds to several individuals with no connection to the contemplated transactions
Finally, the Commission alleged that Smith offered and sold unregistered securities by, among other actions, making several required certifications regarding Malom to investors as part of a securities offering that was intended to help New Hampshire-based USA Springs, Inc. emerge from bankruptcy. As a result of that fraudulent offering, the federal bankruptcy court for the District of New Hampshire entered a $60 million judgment against Malom in 2012. In re USA Springs, Inc., 1:08-bk-11816 (Bankr. D.N.H.).
The Court’s July 2, 2015 summary judgment opinion found that Smith violated Section 17(a) and Section 5 of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Court also granted the following relief against Smith: (1) permanent injunctions against future violations of the securities laws he violated; (2) a permanent injunction prohibiting Smith from participating in, or acting a paymaster in connection with, the issue, offer, or sale of any security, with the exception of purchases or sales made on a national securities exchange; and (3) an order to pay disgorgement of $39,525 in ill-gotten gains together with prejudgment interest of $3,817.88, for total disgorgement of $43,342.88. On October 1, 2015, the Court additionally ordered Smith to pay a $43,342.88 civil penalty.
The SEC’s investigation and litigation was led by Stephen Simpson. The SEC appreciates the assistance of the U.S. Department of Justice, the Federal Bureau of Investigation, and the State Attorney’s Office for the Canton of Zurich, Switzerland.
The SEC previously charged Malom Group AG, its principals, and agents with violating the antifraud and securities registration provisions of the federal securities laws in SEC v. Malom Group AG, et al, 2:13-cv-2280 (D. Nev. Dec. 16, 2013); SEC v. Erwin et al., 2:14-cv-623 (D. Nev. Apr. 23, 2014); and SEC v. Robinson, 2:14-cv-1036 (D. Nev. June 26, 2014). For additional information about these cases, see Litigation Release Number 22890 (Dec. 16, 2013); Litigation Release Number 22978 (Apr. 28, 2014); Litigation Release Number 23032 (June 26, 2014).http://www.sec.gov/litigation/litreleases/2015/lr23383.htm