ftp.publicdebt.treas.gov/ftp.publicdebt.treas.gov.zip/ftp.publicdebt.treas.gov/ccdobns1.txt

Text File | 1999-04-16 | 14KB | 348 lines

POLLY ATKINSON
JULIE K. LUTZ (Ca. Bar No. 77246)
Securities and Exchange Commission
1801 California Street
Denver, Colorado 80202
Telephone: [phone]

KAREN L. MATTESON (Ca. Bar No. 102103)
Securities and Exchange Commission
5670 Wilshire Boulevard
11th Floor
Los Angeles, California 90036-3648
Telephone: [phone]

Attorneys for: The United States Securities and Exchange
Commission


            UNITED STATES DISTRICT COURT

            CENTRAL DISTRICT OF CALIFORNIA


SECURITIES AND EXCHANGE COMMISSION,
    Plaintiff,

    v.

GERALD A. DOBBINS and FIDELITY SECURED DEPOSIT CORPORATION,
    Defendants.


Civil Action No. SACV 98-229

                    COMPLAINT


Plaintiff Securities and Exchange Commission for its complaint
alleges as follows:

                    SUMMARY

    1.  Gerald A. Dobbins, individually and through entities,
including Fidelity Secured Deposit Corporation ("FSDC"),
knowingly made misrepresentations to investors nationwide in
connection with the offer and sale of securities.  Dobbins
provided authentications and valuations of bonds, including those
issued by the Chicago Saginaw and Canada Railroad Co. ("Saginaw")
and the East Alabama & Cincinnati Railroad ("EA&C").  These bonds
are collectible memorabilia with essentially no investment value.
Nevertheless Dobbins, through FSDC, has valued the Saginaw bonds
at up to $110,000,000 and the EA&C bonds at up to $400,000,000.
The Saginaw bonds have been offered and sold to investors at
prices up to $40,000 each.  Dobbins received payments in
connection with the offer and sale of these bonds.  Dobbins has
made material misrepresentations and omitted to state material
facts to investors regarding the value of the bonds, risks
associated with the investments, rates of return that investors
would receive.

    2.  Defendants, directly and indirectly, are now and have
engaged in, and unless restrained and enjoined by this Court will
continue to engage in, transactions, acts, practices, and courses
of business that violate Section 10(b) of the Securities Exchange
Act of 1934 ("Exchange Act") [15 U.S.C. º78j(b)] and Rule 10b-5
thereunder [17 C.F.R. º240.10b-5].

    3.  Defendants, directly and indirectly, are now, and have
engaged in, and unless restrained and enjoined by the Court will
continue to engage in, transactions, acts, practices, and courses
of business that violate Section 17(a) of the Securities Act of
1933 ("Securities Act") [15 U.S.C. º77q(a)].

    4.  The Commission, pursuant to the authority granted to it
by Section 10(b) of the Exchange Act [15 U.S.C. º78j(b)], has
promulgated Rule 10b-5 which was in effect at all times relevant
to this Complaint and is still in effect.

    5.  The Commission brings this action pursuant to the
authority conferred upon it by Section 20(b) of the Securities
Act [15 U.S.C. º77t(b)] and Section 21(d) and (e) of the Exchange
Act [15 U.S.C. º 78u(d) and (e)] for an order permanently
restraining and enjoining Defendants and granting other equitable
relief.

                JURISDICTION AND VENUE

    6.  This Court has jurisdiction over this action pursuant to
Section 22(a) of the Securities Act [15 U.S.C. º 77u(a)] and
Sections 21(e) and 27 of the Exchange Act [15 U.S.C. ºº78u(e) and
78aa].  Venue lies in this Court pursuant to Section 22(a) of the
Securities Act and Section 27 of the Exchange Act.

    7.  In connection with the transactions, acts, practices,
and courses of business described in this Complaint, each of the
Defendants, directly and indirectly, has made use of the means or
instrumentalities of interstate commerce, of the mails, and/or of
the means and instruments of transportation or communication in
interstate commerce.

    8.  Defendants Dobbins and FSDC reside within this judicial
district.  In addition, certain of the transactions, acts,
practices and courses of business constituting the violations of
law alleged herein occurred within this judicial district.

                    DEFENDANTS

    9.  Gerald A. Dobbins is a California resident.  Dobbins
prepared fraudulent authentications and valuations of bonds,
including Saginaw bonds.

    10.  Fidelity Secured Deposit Corporation is an entity used
by Dobbins.  It is located in Hunnington Beach, California.

                    FACTS

                The Saginaw Bonds

    11.  In 1873 Saginaw issued 5,500 thirty year gold backed
bearer bonds paying seven percent interest to finance
construction of a proposed railroad.

    12.  Saginaw's creditors forced it into bankruptcy in 1876
and its assets were purchased by a predecessor of CSX
Transportation, Inc. ("CSX").  CSX's predecessor did not assume
any of Saginaw's outstanding debt, including the railroad bonds.

    13.  All claims to money due under the bonds, which had a
face value of $1000 each, were resolved in the 1876 bankruptcy
proceeding.  At that time, investors presented their bonds for
payments out of funds from the foreclosure sale and received a
distribution amounting to less than 25 cents on the dollar.

    14.  After the bankruptcy proceeding, the bonds remained in
court archives until they were discovered in the basement of a
federal building.  Thereafter a museum in Grand Rapids, Michigan,
packaged the bonds with other historical information about the
Saginaw railroad for sale as collector items for $22.95 each.
The bonds have no value other than as collectible memorabilia.

    15.  CSX has disclaimed any liability for redemption of the
bonds.

                The EA&C Bonds

    16.  EA&C was chartered in 1868, and, in 1870, issued bonds
for building a railroad line.

    17.  In 1870, EA&C issued tenty year gold-backed bearer
bonds, with a face value of $1,000 each, paying eight percent
interest to finance the construction of a railroad.  The state of
Alabama endorsed the EA&C bonds to a limit of $400,000.

    18.  EA&C defaulted on the bonds in 1871 and, after a series
of sales, the company was placed into receivership.

    19.  In 1889, the assets of EA&C were sold and the claims of
bondholders were resolved.

    20.  The bonds currently have no investment value and have
never been registered with the Commission.

        Dobbins represented to investors that
        the Saginaw bonds were worth $110 million

    21.  Since at least October 1995 Dobbins has prepared
Authentications for Saginaw bonds.

    22.  In his Authentications, Dobbins represents that he is
the "Master Curator for the State and the Historical Document
Society"

    23.  In fact, Dobbins is not the master curator for any
state.  In addition, the Historical Document Society does not
exist.

    24.  In his Authentications, Dobbins also states "affiant
has no knowledge that the bonds have been previously invalidated
in any manner.

    25.  Dobbins knew or had reason to know that the issuer of
the bonds had gone into receivership and that several foreclosure
sales had been held.

    26.  Nevertheless, Dobbins concluded his Authentication by
stating "there is no evidence to suggest that the document is
anything but authentic".

    27.  Dobbins, through FSDC, prepared Valuations of Saginaw
bonds.

    28.  The stated purpose of the valuations is "for the
purpose of expressing assurance that the value of the bonds...
are in conformity with generally accepted accounting principles.
I have also listed what these bonds are worth as of the stated
date listed."

    29.  Dobbins concludes his valuations, "the total dollar
amount due and payable and value of each bond is ...".  Dobbins
has valued the Saginaw bonds at over $100,000,000.

Dobbins represented to investors that the EA&C bonds were worth
$400 million

    30.  Since at least May 1997 Dobbins has prepared at least
one Authentication for EA&C bonds.

    31.  In his Authentication, Dobbins again represents that
his is the "Master Curator" for the State and the Historical
Document Society"

    32.  In his Authentication, Dobbins also states that the
bonds are considered as debt instruments.  Dobbins further
asserts that " ... these bonds are guaranteed by the State [of
Alabama] and it is the responsibility of the State to make
payment."

    33.  Dobbins knew or had reason to know that the issuer of
the bonds had gone into receivership and that several foreclosure
sales had been held.

    34.  Dobbins, through FSDC, prepared Valuations of EA&C
bonds.

    35.  The stated purpose of the valuations is "for expressing
assurance that the value of the bonds ... are in conformity with
generally accepted accounting principles.  I have also listed
what this bond is worth as of the stated date listed above."

    36.  Dobbins concludes this valuation, "the current value of
each of these bonds [is] $400,464,081

                    COUNT I
            (Violations of Exchange Act
            º10(b) and Rule 10b-5)

    37.  Plaintiff repeats and realleges Paragraphs 1 through 36
above.

    38.  Defendants, with scienter, in connection with the
purchase or sale of securities, by the use of means or
instrumentalities of interstate commerce or of the mails,
directly or indirectly: (a) employed devices, schemes or
artifices to defraud; (b) made untrue statements of material
facts or omitted to state material facts necessary in order to
make the statements made, in the light of the circumstances under
which they were made, not misleading; or (c) engaged in acts,
practices or courses of business which operated or would operate
as a fraud or deceit upon purchasers of securities in violation
of Section 10(b) of the Exchange Act [15 U.S.C. º78j(b)] and Rule
10b-5 [17 C.F.R. º240.10b-5] thereunder.

    39.  By reason of the foregoing, Defendants violated Section
10(b) of the Exchange Act and Rule 10b-5 thereunder and unless
restrained and enjoined will continue to do so.

                    COUNT II
        (Violations of Securities Act º 17(a)(1))

    40.  Plaintiff repeats and realleges Paragraphs 1 through 36
above.

    41.  Defendants, with scienter, in the offer or sale of
securities, by the use of means or instruments of transportation
or communication in interstate commerce, or by the use of the
mails, directly or indirectly employed devices, schemes or
artifices to defraud in violation of Section 17(a)(1) of the
Securities Act [15 U.S.C. º 77q(a)].

    42.  By reason of the foregoing, Defendants violated
Sections 17(a)(1) of the Securities Act and unless restrained and
enjoined will continue to do so.

                    Count III
            (Violations of Securities Act º
            Section 17(a)(2) and (3)) of
            the Securities Act of 1933)

    43.  Plaintiff repeates and realleges Paragraphs 1 through
36 above.

    44.  Defendants, in the offer or sale of securities, by the
use of means or instruments of transportation or communication in
interstate commerce, or by the use of the mails, directly or
indirectly (a) obtained money or property by means of untrue
statements of material facts or omissions to state material facts
necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading; or
(b) engaged in transactions, practices or courses of business
which operated or would operate as a fraud or deceit upon
purchasers of securities in violation of Section 17(a)(2) and (3)
of the Securities Act [15 U.S.C. º 77q(a)(2) and (3)].

    45.  By reason of the foregoing, Defendants violated
Sections 17(a)(2) and (3) of the Securities Act and unless
restrained and enjoined will continue to do so.

    WHEREFORE, the Commission respectfully requests that this
Court:

                        I.

    Enter an injunction, preliminarily during the pendency of
this action and permanents thereafter, restraining and enjoining
Defendants, their subsidiaries, officers, directors, agents,
servants, employees, and attorneys-in-fact, and all persons in
active concert or participation with them, and each of them, from
violating, directly or indirectly, Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder.

                        II.

    Enter an injunction, preliminarily during the pendency of
this action and permanently thereafter, restraining and enjoining
Defendants, their subsidiaries, officers, directors, agents,
servants, employees, and attorneys-in-fact, and all persons in
active concert or participation with them, and each of them, from
violating, directly or indirectly, Section 17(a) of the
Securities Act.

                        III.

    Order Defendants and their officers, agents, servants,
employees and attorneys, disgorge all illegal gains, together
with prejudgment interest.

                        IV.

    Order Defendants to pay civil money penalties pursuant to
Section 20(d) of the Securities Act [15 U.S.C. º 77t(d)], Section
21(d)(3) of the Exchange Act [15 U.S.C. 78u(d)(3)], and Section
42(e) of the Investment Company Act [15 U.S.C. º 80a-41].

                        V.

    Grant such other relief as this Court may deem just or
appropriate.

Dated: March 9, 1998

Respectfully submitted,

/s/ Polly Atkinson
POLLY ATKINSON
JULIE K. LUTZ
Securities and Exchange Commission