Judge issues injunction in LV lending case

Kevin Rademacher

Friday, Dec. 19, 2003 | 10:55 a.m.

A preliminary injunction freezing the assets of the three investment companies operated by Las Vegas lender Connie Farris was granted Thursday by a U.S. District Court judge.

The companies also have been placed under the control of a permanent receiver -- James H. Donnell of Los Angeles. The order followed arguments presented Wednesday by attorneys for Farris, disgruntled investors and the Securities and Exchange Commission.

In his order, Judge Kent Dawson found creedance in the allegations made against the defendants -- Farris, Global Express Capital Real Estate Investment Fund I Inc., Global Express Securities Inc., Global Express Capital Mortgage Corp., and Global Express Securities President Dawn Reese -- in a Dec. 4 lawsuit filed by the SEC.

"The (SEC) has demonstrated a probability of success on the merits in this action," the order said. "Good cause exists to believe that the defendants will continue to engage in such violations to the immediate and irreparable loss and damage to investors and to the general public unless they are restrained and enjoined."

In its lawsuit, the SEC claimed that the companies were operating a "Ponzi-like" investment scheme.

The lawsuit claimed 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 enough 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 response to the judge's order, Charles Clawson, an attorney representing Farris, denied the SEC's allegations.

"She denies any wrongdoing," he said. "At all times her priority has been to protect the investors. We will vigorously defend her and expect to prevail in court."

The order did not address claims made by Farris' defense team on Wednesday that the receiver was prohibiting access to documents needed to mount a defense.

"There is nothing in the order to address us," said Clawson, an attorney with the Las Vegas firm of Alverson Taylor. "We will have to petition the court for access to those documents."

The judge also ordered Farris and Reese to file with the court a "detailed and complete schedule of all of their real and personal property exceeding $5,000 in value, all bank, securities futures and other accounts identified by institution, branch address and account number." They have 20 days to comply with the order.

Also covered by the order is a stay of any third-party litigation against the defendants in other courts and a prohibition on the destruction of any documents.

In court, SEC attorney Jose Sanchez argued that third-party cases should be restricted at least until the nature of the fund's assets can be determined by the receiver.

In a victory for investors, Dawson limited the power of the receiver by mandating that assets can only be sold with the court's approval. On Wednesday, David Jennings, an attorney representing several investors, argued that in many similar cases assets have been sold off at "firesale" prices, reducing the return for investors.

"We are very encouraged by that language in there," said Jennings, an attorney with McDonald Carano Wilson LLP. "We pretty much got what we wanted, at least at this early stage."

Jennings has filed a motion seeking permission for investors to intervene in the case. That move, he said, would give them some say in the fate of the assets of the embattled fund. A date has not been set for a ruling on the investors' motion.

In the meantime, he said the recent flurry of court activity has done little to ease the fear of the estimated 600 investors involved in the Global fund.

"Their greatest fear is the fear of the unknown," Jennings said. "The court doesn't know, the fund doesn't know, the investors don't know, the receiver doesn't know what assets are there and what the value of their assets are.

"The fear is that discovery will find that these assets are nowhere near covering their investment."