Fraudsters Get Their Assets Frozen

Jack Humphrey, Regulatory journalist
October 20, 2011 /

The Securities and Exchange Commission has obtained an emergency court order freezing the assets of a Texas resident and his company charged with making up stories to investors.

The case is assigned to U.S. District Judge Michael H. Schneider. The court has scheduled a hearing on the SEC’s motions to appoint a receiver and for a preliminary injunction for Thursday, Oct. 27, 2011, at 2 p.m. CT before U.S. Magistrate Judge Amos L. Mazzant at the U.S. Courthouse in Sherman, Texas.

The SEC alleged that James Temme made investors to believe he was using their money to buy and restructure pools of non-performing home mortgages in the wake of the housing market’s decline.

Temme and Stewardship Fund LP raised at least $35 million since 2008 from various investor groups, according to the SEC. To lure those investors, Temme developed relationships with people and entities who “vouched” for Temme, including an investment adviser representative with a major investment bank’s private wealth management group and a Texas-based public company that provides mortgage restructuring services.

Investors and their advisers, including the bank representative, were told by Temme that he was using the investors’ money to purchase “tapes” of non-performing mortgages from mortgage lenders at a discount and then paying returns based on principal and interest payments he collected from the homeowners, or based on the resale of the mortgages or underlying properties.

In several instances, however, Temme was claiming to own mortgages he had never acquired or purporting to transfer the same pool of mortgages to multiple sets of investors. To carry out his scheme, Temme created false documents, made unauthorized financial transactions, and used new investor funds to pay off earlier investors.

“Temme took advantage of investors who believed their investments were helping homeowners restructure their mortgages,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office.

“In many instances, it appears Temme was just pocketing the investments and using the proceeds for his own illicit purposes.”

According to the SEC’s complaint unsealed by a judge in federal court in the Eastern District of Texas, Temme previously faced at least one state court asset freeze and various private lawsuits by different investor groups. However, rather than stopping his scheme, Temme ignored the asset freezes, opened new bank accounts, and raised money from new investors to settle suits filed by earlier investors.

The SEC’s complaint charges, among other things, that the defendants violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

In addition to emergency and interim relief that has been obtained, the SEC seeks a preliminary injunction and a final judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest.

Jonathan Scott, Michael Jackman and Ty Martinez of the Fort Worth Regional Office are conducting the SEC’s investigation, and trial attorney David Reece will lead the litigation. The SEC’s investigation is continuing.

 

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