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SEC LITIGATION RELEASE
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EXTRACTED KEY WORDS
KOVALCHEK SECURITIES ERI INVESTORS EXCHANGE COMMISSION ETHANOL RESOURCES SALE UNITED STATES THOMAS DISTRICT FLORIDA RYSKAMP VIOLATE GUARANTEE LEASE PAY ACT GALLONS PRODUCTION REASONABLE BASIS DISCLOSE DEFRAUDED INVESTORS PRIOR INVESTMENT EXPERIENCE THEREUNDER ORDERED KOVALCHEK DISGORGE ILL-GOTTEN GAINS PAY CIVIL MONEY CIVIL MONEY PENALTIES |
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 14841 / March 12, 1996
SECURITIES AND EXCHANGE COMMISSION V. ETHANOL RESOURCES, INC. AND
THOMAS KOVALCHEK, Case No. 6553-CIV-RYSKAMP (S.D. Fla. 1994)
The Commission announced at the conclusion of a hearing on
October 4, 1995, in federal District Court for the Southern
District of Florida, the Honorable Kenneth J. Ryskamp found that
Thomas J. Kovalchek, age 51, and Ethanol Resources, Inc. ("ERI"),
both of West Palm Beach, Florida, violated the anti-fraud
provisions of the federal securities laws in connection with the
sale of $170,293 of promissory notes in late 1992 and early 1993.
The Commission charged that Kovalchek and ERI falsely told
investors that: (1) 90% of their principal was guaranteed by the
United States Government when, in fact, no such guarantee
existed; (2) the investments were secured by a 25-year lease
between ERI and the Seminole Indian Tribe when, in fact, the
lease was invalid and worthless; and (3) they would earn a 7.5%
to 10% monthly rate of return based on the sale of 2.5 million
gallons of ethanol in ERI's first year of production when, in
fact, there was no reasonable basis for such claims. The
Commission also charged that Kovalchek and ERI failed to disclose
that 10% of each investment was used to pay sales commissions.
The Commission's papers noted that most of the defrauded
investors were unsophisticated, elderly persons who had little or
no prior investment experience.
Judge Ryskamp enjoined Kovalchek and ERI from continuing to
violate Section 17(a) of the Securities Act of 1933, and Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5,
thereunder, and ordered Kovalchek and ERI within 30 days to
disgorge, jointly and severally, ill-gotten gains of $170,293,
plus interest, and to pay civil money penalties of $100,000 and
$500,000, respectively.
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