UNITED STATES SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 15931 / October 6, 1998 SECURITIES AND EXCHANGE COMMISSION V. FIRST AMERICAN RELIANCE, INC., et al., No. 98-CV-6423T, U.S.D.C., W.D.N.Y. The Securities and Exchange Commission ("Commission") announced that, on October 6, 1998, the United District Court for the Western District of New York issued a temporary restraining order against First American Reliance, Inc. ("FAR"), Money Managers, Inc. ("MMI"), Unified Commercial Capital, Inc. ("UCC"), and American Freedom Securities, Inc. ("AFS"). The Order entered by Judge Michael A. Telesca: (1) freezes the defendants' assets; (2) temporarily restrains the defendants from violating the antifraud provisions of the federal securities laws; (3) appoints a temporary receiver for the defendants; (4) imposes a constructive trust on life insurance policies purchased with investor funds; and (5) imposes a stay on all actions filed against the defendants. The Order arises from a complaint filed on October 6, 1998, in which the Commission alleges that the defendants fraudulently offered and sold debentures issued by FAR, MMI and UCC, through AFS, a registered securities broker- dealer. The defendants were owned or controlled by Samuel A. Yacono ("Yacono"), formerly of Rochester and Williamson, New York. On August 24, 1998, at the age of 50 and shortly after being served with subpoenas in the Commission's investigation into the defendant companies, Yacono committed suicide. The defendants are described in the Complaint as follows: FIRST AMERICAN RELIANCE, INC. is a New York corporation with its principal office in Fairport, New York. Yacono was the president, a director and the sole shareholder of FAR. FAR purports to be in the business of making highly secured loans to businesses. MONEY MANAGERS, INC. is a New York corporation with its principal office in Fairport, New York. Yacono was the president, a director and the sole shareholder of MMI. MMI purports to be in the business of both financial planning and making highly secured loans to businesses. UNIFIED COMMERCIAL CAPITAL, INC. is a New York corporation with its principal office in Fairport, New York. Yacono was a 25% shareholder, a director and president and treasurer of UCC. UCC purports to be in the business of "factoring," or financing accounts receivables of local corporations. AMERICAN FREEDOM SECURITIES, INC. is a New York corporation with its principal office in Fairport, New York. AFS is registered with the Commission as a broker-dealer. Yacono was a majority shareholder, director, vice-president and a broker for AFS. The Commission's complaint alleges as follows: Between 1994 and August 1998, FAR, MMI, and UCC, through AFS, and various registered representatives associated with AFS, all acting under Yacono's control, sold to the investing public at least $5 million worth of debentures. These debentures were marketed to the public as "CD Alternatives" which were "just like putting money in the bank", promising "guaranteed" interest rates of between 6% and 12%, and emphasizing "safety of principal." FAR and MMI represented that they would use money raised from investors to finance secured loans to companies at "lucrative interest rates," generating profits to pay their investors a relatively high return. UCC claimed that it would engage in the business of factoring. These representations were false. Yacono diverted investor funds to himself, his other business ventures, his friends, relatives, and business associates. In addition, Yacono misappropriated investor funds to pay the premiums on two $1 million life insurance policies issued by Prudential Life Insurance Company of America ("Prudential") and one $2 million life insurance policy issued by the William Penn Life Insurance Company of New York ("William Penn"). The Commission named Prudential and William Penn in its complaint as relief defendants. The relief sought by the Commission includes having the court impose a constructive trust on the proceeds of these policies. In its Complaint, the Commission seeks from all of the defendants an accounting and disgorgement of their unjust enrichment plus prejudgment interest, as well as civil penalties. The Commission also seeks preliminary and permanent injunctive relief against the defendants from violating Sections 17(a) of the Securities Act of 1933 and Section10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The litigation is pending.