Thursday, Dec. 18, 2003 | 10:55 a.m.
Attorneys for embattled Las Vegas mortgage lender Connie Farris, disgruntled investors and the Securities and Exchange Commission argued over fraud allegations for nearly two hours on Wednesday.
Ultimately, U.S. District Judge Kent Dawson told the parties they would have to wait for a ruling on the SEC's request to place a preliminary injunction on the company and appoint a permanent receiver to determine the fate of the fund's remaining assets.
In the meantime, a temporary restraining order and receiver will remain in place while the judge weighs the future of Global Express Capital Real Estate Investment Fund I Inc., Global Express Capital Mortgage Corp., Global Express Securities Inc., Farris and her business associate Dawn Reese.
In court, the SEC also asked the judge to include two additional companies in the complaint -- Global Express Capital Corp. and Conrex International Financial Inc.
The SEC, on Dec. 4, filed a lawsuit against the defendants accusing them of operating a "Ponzi-like" investment scheme.
At Wednesday's hearing, Theodore Miller, who claimed to be the fund's largest investor, said Farris misled him and other investors he helped attract to the fund.
"We've been extorted," Miller said, adding that he personally invested as much as $3.5 million with Farris. "We were conned into these loans with the promise of great security. Praise be the (SEC) for shutting them down before we lost additional money each month."
The SEC's lawsuit claims that the fund -- which had raised more than $48 million as of August -- was promising returns to investors of at least 12 percent. The fund, however, was not generating income to support those returns and was instead using personal funds from Farris and financial contributions from new investors to make payments to existing investors, the lawsuit claimed.
In court, Jose Sanchez, trial counsel for the SEC's Office of Enforcement, said that between March and September the fund paid out $2.3 million to investors but it only earned $154,000.
"This scheme was scheduled to fall apart," he said.
Erven Nelson, an attorney representing Farris, said that despite claims of Sanchez and Miller, his client is being accused of trying to protect investors.
"This is the first case of fraud I know of where the defendant is accused of making payments," he said. Nelson did, however, indicate that there are "some concerns" over possible irregularities in documents the company was distributing to prospective investors.
Still, he emphasized that there have been no claims that any of the fraud allegations ever enriched Farris.
"This is not a case, your honor, of anyone accusing Ms. Farris of taking money for personal gain," Nelson said. "What it's saying is that she put too much money into the fund. She was paying investors. That's terrible. Let's shut her down."
Later in the hearing, Nelson said that the SEC also has made threats of a criminal indictment against Farris. He also said that claims that new investor money was being used to pay previous investors are frivolous.
"There's no evidence of that," he said.
In addition, Nelson argued that the terms of the current restraining order and the oversight of the SEC have hindered efforts to mount a defense for Farris and for the affiliated companies to hire legal counsel.
"We have no access to records," Nelson said. "They are totally shutting us out. ... What has happened here is that the burden of proof has been shifted to the defendants."
David Jennings, an attorney representing several investors in the fund, told the judge that the appointment of a receiver could damage the value of the estate for investors.
"We do fear that what (the receiver) intends to do is sell off assets at firesale prices," he said.
Jennings asked the court for permission to allow investors to organize and have some input in the selection of a new fund manager. The judge did approve the request for investors to organize and, while issuing no formal order, indicated some agreement to concerns over asset sales.
"Investors in the fund should have the right to expect that assets will have the maximum value at the time of sale," Dawson said.
Sanchez, however, urged the judge to refrain from limiting the scope of the receiver's authority and the current restraining order.
"It is clear that we do not have enough information to determine if the best course of action is to limit the (temporary restraining order) as some investors have requested," he said. "At this point the receiver is not sure what's out there."
Following the meeting, Jennings issued a statement on behalf of investors.
"The bottom line is that the fund and its members have done nothing wrong," the statement said. "It is our fund and our money, and we deserve and demand the right to determine what happens to it. Since we suffer the loss if the receiver makes a bad decision, the only fair thing is to allow the owners of the fund a voice in managing whatever is left."
The statement said that an investor meeting is being organized for early January.
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