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SEC sues family for defrauding church investors
Jul 27, 2005 — WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission said on Wednesday it sued an Indiana family accused of misusing millions of dollars they raised from Christian faith investors, including elderly people who depended on monthly fixed income payments.
The federal regulators said they obtained a court order against four men of the Reeves family of Sullivan, Indiana. They were accused of diverting $13 million of funds for trading stock and equity options and making loans to themselves and companies they controlled.
The Reeves family raised more than $120 million from investors in church bonds and more than $50 million from investors in other bond funds, according to the SEC’s lawsuit.
The funds were supposed to be held in trust for bondholders, but some of the funds were used for other purposes, the SEC said, and the Reeves family also misrepresented the rates of return of the bond funds.
The SEC said it filed a civil complaint on Tuesday in a federal court in Indianapolis against Vaughn Reeves Sr., his three sons Vaughn, Christopher and Josh, the brokerage firm called Alanar and a group of bond funds and paying agents they controlled.
“Alanar’s and the Reeves’ scheme is an affinity fraud,” the SEC said in its complaint. “Many investors bought church bonds and units in the Bond Funds through Alanar because of their desire to help churches in need of funds.
“In addition, many of the investors are elderly and some of them depend on the monthly payments as part of a fixed income.”
Peter French, who is representing the Reeves family, said his clients have been working with the SEC over the last three months to resume payments to investors and Alanar, which had offices throughout the Midwestern and eastern United States, has voluntarily shut down.
“I don’t believe this is a situation where you’re going to see investors get pennies on the dollar,” French said. “Most of the investors are going to be made whole and even those that aren’t are going to receive a significant return on principle.”
The three paying agents listed on the SEC complaint are Guardian Services LLC, First Financial Services of Sullivan County Inc. and The Liberty Group Inc. Vaughn Reeves is the chief executive officer of all three entities, according to the complaint.
Under the court order, the defendants are prohibited from destroying documents and are required to appoint an Indianapolis lawyer as a independent monitor to oversee the day-to-day operations, the SEC said.
The regulators are seeking the return of ill-gotten money and to impose civil penalties against the defendants, who agreed to the permanent injunction without admitting or denying the SEC allegations.
The attorney for bond funds, John Harris, said the funds’ directors plan to work closely with the monitor to secure and maximize the returns to investors.
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