U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20709 / September 9, 2008
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
Court Permanently Enjoins Weatherford, Texas Resident Carl Lee and His Company Carl Lee and Associates, Inc. from Violating Certain Antifraud and Registration Provisions
The Securities and Exchange Commission announced that on September 5, 2008, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered an order permanently enjoining Carl Q. Lee (Lee) of Weatherford, Texas and Carl Lee and Associates, Inc. (Lee Associates), Lee's business, from violating certain of the antifraud and registration provisions of the federal securities laws. The order, entered with Lee and Lee Associates' consent, permanently enjoins them from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 10b-10 promulgated thereunder, and enjoins Lee from aiding and abetting violations of Rule 10b-10 of the Exchange Act.
The SEC's complaint in this matter charges that Michael E. Kelly and 25 other defendants, including Lee and Lee Associates, participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Lease investments. Universal Leases 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, including Lee and Lee Associates, 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, including Lee and Lee Associates, 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 others, including Lee and Lee Associates, failed to disclose key facts about the Universal Lease investments, including the risks of the investments and that more than $72 million in investor funds were used to pay commissions as high as 27% to the selling brokers. The SEC continues to pursue its claims against Lee and Lee Associates for disgorgement and civil penalties. The SEC's action against the remaining defendants is also pending.
For additional information, see Litigation Release Nos. 20267 (Sept. 5, 2007), 20573 (May 14, 2008), 20578 (May 15, 2008), 20579 (May 15, 2008), 20664 (July 31, 2008) and 20679 (August 12, 2008) [SEC v. Michael E. Kelly, et al., Civil Action No. 07-CV-4979 (N.D. Ill.)]