U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20255 / August 24, 2007
SEC v. Secure Investment Services, Inc., American Financial Services, Inc., Lyndon Group, Inc., Donald F. Neuhaus, and Kimberly A. Snowden, Case No. 2:07-CV-01724-LEK-CMK (E.D. Cal. August 23, 2007)
Commission Obtains Temporary Restraining Order, Asset Freeze and Appointment of a Receiver in Alleged $25 Million Ponzi Scheme
On August 24, 2007, the U.S. District Court for the Eastern District of California granted the SEC's request and issued an order temporarily prohibiting the further sales of investments by defendants, freezing assets, and appointing Michael J. Quilling to take control of the assets and operations of Secure Investment Services, Inc., American Financial Services, Inc. and the Lyndon Group, Inc., as a temporary receiver. The court set the matter for further hearing on a preliminary injunction on September 21, 2007.
According to its complaint, the Commission alleges that Donald Neuhaus of Redding, Calif., his daughter Kimberley Snowden, and their company Secure Investment Services, Inc., orchestrated the Ponzi scheme that falsely promised safe, secure and profitable interests in life insurance policies known as "viaticals" while failing to disclose the dire financial condition of the investment venture. Many of the investors were elderly and invested their retirement savings. The Commission also alleges Neuhaus and Snowden pocketed $700,000 for their personal use while the scam was on the verge of collapse.
According to the Commission's complaint, Neuhaus and Snowden sold shares of life insurance policies, calling them "bonded life settlements." They persuaded investors to buy the securities by representing that their money would be used to purchase and pay the necessary premiums on the life insurance policies. They promised returns up to 125 percent when the person insured by the policy died.
The Commission's complaint alleges that Neuhaus and Snowden instead used investors' money for their own personal use and to cover the premiums on other insurance policies owned by other groups of investors. Their conduct constituted a Ponzi scheme in which every new investor was being defrauded to provide the cash needed to conceal the misrepresentations to an earlier group of investors. They failed to inform investors that the enterprise was on the brink of collapse, and that investors risked losing everything if life insurance policies expired due to lack of payment.
The Commission further alleges that Neuhaus and Snowden misled investors by providing them with life expectancy estimates supposedly certified by a physician who was, in reality, a convicted felon falsely holding himself out as a physician. They falsely claimed that the investments were protected by bonding companies. But these were, in fact, unlicensed overseas firms with no assurance of actually repaying investors.
The Commission continues to seek preliminary and permanent injunctions, return of ill-gotten gains with prejudgment interest, and penalties against all defendants.
Investors may direct their inquiries to the temporary receiver, Michael J. Quilling, at (214) 871-2100 or visit his website at www.secreceiver.com.
Additional Materials:
Temporary Restraining OrderOrder Appointing Temporary Receiver