SEC Halts Offering Fraud by Chicago-Based Firms
FOR IMMEDIATE RELEASE 2010-208
Washington, D.C., Oct. 29, 2010 — The Securities and Exchange Commission today obtained an emergency court order freezing the assets of two Chicago-based financial firms that were conducting a fraudulent offering of promissory notes.
The SEC alleges that the firms’ owners Steven Brewer and Adam Erickson raised approximately $5.6 million from investors, providing offering materials that misstated or concealed how their funds would actually be used. Brewer and Erickson also misrepresented the risk level of the investment and the financial condition of their companies while, unbeknownst to investors, they funneled nearly all of the offering proceeds to subsidize their parent company Brewer Investment Group (BIG) and one of its subsidiaries during a time when they were under significant financial distress.
“Brewer and Erickson raised substantial funds to capitalize their own struggling business operations while leading unsuspecting investors to believe their investments would be secured by collateral,” said Donald Hoerl, Director of the SEC’s Denver Regional Office. “They went so far as to continue selling promissory notes to new investors even after they discontinued making interest payments to earlier investors.”
According to the SEC’s complaint filed in federal court in Chicago, Brewer and Erickson conducted the fraudulent offering through their broker-dealer Brewer Financial Services LLC (BFS) and investment adviser firm Brewer Investment Advisors LLC (BIA), and it consisted of promissory notes issued by a company based in Isle of Man. Brewer and Erickson drafted, reviewed or approved the offering documents for the notes, which implicitly and explicitly represented that the proceeds of the offering would be used to procure collateral in order to secure the promissory notes being issued to investors. Instead, more than 90 percent of the proceeds were disbursed to BIG and spent at Brewer’s direction, and the promised collateral was never obtained. The offering materials failed to disclose the extent to which the Brewer companies were losing money, the fact that BIG had failed to make required interest payments on earlier investors’ promissory notes, and the fact that BIG had failed to meet its own payroll obligations.
The SEC’s complaint alleges that all of the defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint also alleges that BFS violated, and Brewer and Erickson aided and abetted the violation of, Section 15(c) of the Exchange Act. The complaint further alleges that BIA violated, and Brewer and Erickson aided and abetted the violation of, Sections 206(1) and 206(2) of the Investment Advisers Act.
Upon the consent of all defendants, the Honorable Blanche M. Manning in the U.S. District Court in Chicago granted the SEC’s request for an asset freeze against BFS and BIG and preliminary injunctions and other remedies against Brewer, Erickson, BFS, BIA, and BIG. In addition to the emergency relief for investors, the SEC seeks permanent injunctions, disgorgement plus pre-judgment interest, and financial penalties against all of the defendants.
This case was investigated by the enforcement staff in the SEC’s Denver Regional Office with the assistance of examination staff in the SEC’s Denver and Chicago offices. The Commission appreciates the assistance of FINRA in this matter.
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For more information about this enforcement action, contact:
Donald M. Hoerl
Regional Director, SEC’s Denver Regional Office
Julie K. Lutz
Associate Regional Director, SEC’s Denver Regional Office