SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 18336 /September 10, 2003
SEC OBTAINS EMERGENCY RELIEF AGAINST OPERATOR OF INTERNET PONZI SCHEME
SEC v. Blake A. Prater and Wellspring Capital Group, Inc. (United States District Court for the District of Connecticut, Civil Action No. 303-CV-01524-MRK).
The Commission announced today that, on September 8, 2003, it obtained a temporary restraining order, asset freeze and other ancillary relief against Blake A. Prater and his company, Wellspring Capital Group, Inc., in connection with a Ponzi scheme operated over the Internet and by other means. The Commission alleged in its complaint, filed on September 5, 2003, that Prater and Wellspring fraudulently promised investors returns as high as 1,000 percent per year in connection with the scheme. The Honorable Peter C. Dorsey, United States District Judge for the District of Connecticut, granted the TRO and asset freeze after an ex parte hearing in federal court in New Haven on Monday, September 8. The court's order was based on the Commission's prima facie showing that Prater and Wellspring had engaged in securities fraud and other violations of the federal securities laws.
According to the Commission's complaint, Prater, of Guilford Connecticut, and Wellspring, also headquartered in Guilford, Connecticut, operated a sophisticated Internet Ponzi scheme that raised at least $3 million from thousands of investors. The Commission's complaint alleged that Prater's scheme used a series of interrelated Internet web sites and a network of agents operating throughout the United States to guarantee prospective investors exorbitant returns through a variety of programs. According to the Commission's complaint, under one set of programs, Prater, through Wellspring, promised that, in exchange for a small sum of money, it would pay investors returns as high as 1,000 percent per year in the form of payments for various living expenses of the investors, such as car loans, rent, or business expenses. The Commission's complaint alleged that Wellspring claimed it used the investor funds to invest in a portfolio of companies, and that the profits from the portfolio, in turn, paid for the exorbitant returns to investors. According to the Commission's complaint, Wellspring also offered investors the opportunity to invest directly in the portfolio of companies. In this aspect of the scheme as well, Prater guaranteed investors a profit and made misrepresentations about the companies in the portfolio and about his own qualifications. The Commission's complaint further alleged that Prater also failed to disclose his criminal history, which includes forgery and fraud convictions, to investors. According to the Commission's complaint, Wellspring also operated out of satellite offices in St. Albans, Vermont, and elsewhere.
The Commission alleged in its Complaint that Prater and Wellspring violated anti-fraud provisions of the federal securities laws, specifically Sections 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also alleged that the defendants violated the registration provisions of the securities laws, namely Sections 5(a) and 5(c) of the Securities Act of 1933.
The case has now been assigned to the Honorable Mark R. Kravitz. The Commission obtained entry of an order temporarily restraining Prater and Wellspring from directly or indirectly continuing to violate the federal securities laws, an asset freeze, and other emergency relief. The Court has scheduled a hearing on the matter for September 15, 2003.