Amish – Affinity Fraud

The Securities and Exchange Commission recently published Litigation Release No. 21856 on February 15, 2011 in which the SEC charged Monroe L. Beachy in $33 million offering fraud that targeted the Amish.

The cased is styled Securities and Exchange Commission v. Monroe L. Beachy, Civil Action No. 11-cv-320-SL in the United States District Court for the Northern District of Ohio.

The Securities and Exchange Commission announced that on February 15, 2011, it filed a civil injunction action in the United States District Court for the Northern District of Ohio charging Monroe L. Beachy with conducting an unregistered and fraudulent offering of securities that raised more than $33 million. The SEC alleges that Beachy, a 77-year-old Amish man from Sugarcreek, Ohio, targeted his fellow Amish as investors in his fraudulent offering.

The SEC’s complaint alleges that from as early as 1986 through June 2010, Beachy, doing business as A&M Investments, raised at least $33 million from more than 2,600 investors through the offer and sale of investment contracts. The vast majority of Beachy’s investors were Amish. Beachy enticed investors by promising interest rates that were greater than banks were offering at the time. Many of Beachy’s investors treated their investment accounts with Beachy like money market accounts, from which they could withdraw their money at any time. Beachy told his investors that their money would be used to purchase risk-free U.S. government securities, which would generate returns for the investors. In reality, Beachy used the money to make speculative investments in high yield (junk) bonds, mutual funds, and stocks.

The complaint further alleges that Beachy suffered significant losses in investor principal, which Beachy hid from his investors. Beachy mailed his investors monthly account statements showing fabricated rates of return and exaggerated account balances. As of June 2010, Beachy’s investors believed, based on the fraudulent monthly statements Beachy had sent them, that they had approximately $33 million invested with Beachy. In reality, less than $18 million of investor money remained. Beachy filed for Chapter 7 bankruptcy on June 30, 2010, and his assets are currently under the control of a Chapter 7 bankruptcy trustee appointed by the bankruptcy court.

The SEC’s complaint charges Beachy with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Beachy has agreed to settle the SEC’s charges without admitting or denying the allegations. Beachy has consented to the entry of a final judgment permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s proposed judgment does not impose a civil penalty based on Beachy’s financial condition.

The settlement is subject to the approval of the United States District Court for the Northern District of Ohio.