U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20573 / May 14, 2008

USA v. Michael E. Kelly, Case No. 1:06-CR-964 in the United States District Court for the Northern District of Illinois

SEC v. Michael E. Kelly, et al., Case No. 1:07-CV-4979 in the United States District Court for the Northern District of Illinois

The Securities and Exchange Commission announced today that on May 9, 2008, the United States Attorney's Office for the Northern District of Illinois filed a 14-count criminal information against Michael E. Kelly ("Kelly"), a former South Bend, Indiana businessman that the Commission previously charged with securities fraud in a civil action filed in September 2007. The information alleges that Kelly engaged in a fraudulent investment scheme by offering and selling through fraudulent means approximately $34 million in promissory notes and more than $450 million in investments called Universal Leases. The criminal information charges Kelly with 10 counts of mail fraud, two counts of wire fraud and two counts of securities fraud and also seeks the forfeiture of approximately $500 million. Kelly was initially charged in a criminal complaint when he was arrested in December 2006.

The criminal charges against Kelly are based on the same conduct underlying the SEC's September 5, 2007 civil action filed against Kelly and 25 other defendants. The SEC's complaint alleges that Kelly and the other defendants participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Leases. Universal Lease investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC's complaint alleges that from 1999 until 2005, Kelly and others raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges, the leasing agent was a small Panamanian travel agency controlled by Kelly, and for most of the scheme its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and the other defendants failed to disclose key facts about the Universal Lease investment, including the risks of the investment and that more than $72 million in investor funds were used to pay commissions as high as 27% to the selling brokers. The SEC's action, which is pending, seeks injunctions against each of the defendants from further violations of the charged provisions of the federal securities laws, disgorgement of ill-gotten gains, and civil penalties.

For further information, see Litigation Release No. 20267 (Sept. 5, 2007).