On May 20, 2011, in Securities And Exchange Commission v. David Gordon Wallace, Jr. And Costa Bajjali (SD Texas, 11-CV-1932, May 20, 2011), the SEC filed a Complaint seeking civil money penalties and a permanent injunction from future violations of federal securities laws.
NOTE: The allegations in the Complaint are merely accusations and Defendants are presumed innocent unless and until proven guilty in a court of law.
SIDE BAR: This suit is a related case to:
SEC v. Daniel Sholom Frishberg (Case No. 4:11-cv-01097, March 23, 2011).
On Nov. 13, 2009, the SEC sued Albert Fase Kaleta and his company, Kaleta Capital Management, Inc. (KCM), in the United States District Court in Houston, Texas. The SEC alleged that Kaleta and KCM defrauded investors in the offer and sale of KCM-issued promissory notes in an offering that raised $10 million from approximately 50 investors.
Additionally, the SEC sued two other entities as Relief Defendants ,solely for the purposes of equitable relief.:
The SEC alleged that Kaleta lied to investors about the intended uses of offering proceeds; for example, he took approximately $1.5 million of the offering proceeds to pay personal expenses.
Without admitting or denying the allegations, Kaleta and KCM consented to permanent injunctions against future violations of the antifraud provisions, as well as an order appointing a receiver. The Court will determine the amount of disgorgement and civil penalty that will be assessed against Kaleta and KCM.
Daniel Sholom Frishberg, 65, a resident of Houston, Texas, was:
Frishberg consented to:
The SEC alleges that beginning in 2006, Wallace, now 49, and Bajjali, now 45, entered into an agreement with a Houston investment-adviser firm (although not named in the Wallace and Bajjali Complaint, the firm appears to be DFFS) ("Investment Adviser") under which the Investment Adviser could recommend to its clients securities investments in the Wallace-Bajjali Fund and the Opportunity Fund, both controlled by Wallace and Bajjali.
From November 28, 2006, through December 31, 2007, the Wallace-Bajjali Fund raised money (mostly from clients of the Investment Adviser) through the sales efforts of Wallace and Bajjali and the recommendations of the Investment Adviser. In undertaking the offering, Wallace and Bajjali distributed a private-placement memorandum ("PPM") containing information for investors about the Wallace-Bajjali Fund securities offering. The PPM said the Wallace-Bajjali Fund would invest no more than 33% of the offering proceeds in any one business.
By May 2007, approximately $16 million had been raised, of which more than $6.5 million (over 40% of the raised funds) was invested BizRadio, which the Complaint characterizes as "a financially precarious Houston-based media company controlled by an Investment Adviser officer."
At the end of 2007, Wallace, Bajjali, and others created the Opportunity Fund, primarily to invest in real estate projects. Wallace and Bajjali marketed the Opportunity Fund through the Investment Adviser exclusively to Investment Adviser clients and the fund's PPM, limited investment in any one business to 20% of the Opportunity Fund offering proceeds (which ratio had to be in place at the time of closing pursuant to the PPM).
When the Opportunity Fund closed in December 2008, it had raised approximately $7 million, of which about $4 million (about 57%) was invested in BizRadio.
The Complaint alleges that Defendants Wallace and Bajjali should have taken steps to ensure the Funds invested within the limits provided in the PPMs. These limits signified a certain level of diversification, such that the Funds' risk of loss from any single investment would be minimized. Because the Funds exceeded the investment limits in BizRadio, investors were forced to take on much greater investment risk than Wallace and Bajjali disclosed in the PPMs.
Without admitting or denying SEC's allegations, Wallace and Bajjali each consented to the entry of a permanent injunction and to pay a $60,000 civil penalty.