SEC v. Kenton Capital, Ltd

69 F. Supp. 2d 1 (D.D.C. 1998)

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Nature of the Case

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Facts

D is incorporated in the Cayman Islands, British West Indies. Wallace is D's president. Wallace was interested in raising money through short-term bank instruments. Wallace met Carter, who claimed to have experience with such programs. Carter introduced Wallace to some investors in the Cayman Islands. Wallace established D and arranged for Carter to act as a consultant for the company. Wallace made all of D's decisions. From a hotel room in Little Rock, Arkansas, Carter contacted prospective investors about providing capital to D. Carter sent agreements to three investors, which described trading programs with projected returns of 3750% per week for forty weeks. The agreements ensured that the investment would be 'returned to the investor no later than the end of the investment period' of one year and one day. Wallace signed these agreements but did not monitor Carter's representations to investors. To others named Watson and French contacted investors for D, and Wallace did not monitor their representations either. Wallace and Carter met with Watson to discuss possible trading programs. Watson informed them that he believed Carter's program offering a 3750% return was 'absolutely impossible' and would lose money. The final program presented to investors would generate 7% profits per week, provided that investors pledged at least $100,000 in cash. For every $100,000 invested, investors were promised $110,000 in profits per week for forty weeks. The documents did not mention any risks to investors. Over forty investors pledged to invest in D's trading program. Ds actually collected $1,745,000 from twelve investors. On April 26, 1995, D learned that P was investigating its trading program. P obtained a Temporary Restraining Order prohibiting D from transferring any funds, thereby halting the trading program. P has now filed a motion for summary judgment. The matter is now before the Court on Ps Motion for Summary Judgment.