If you’ve been following the recent activity in the Securities and Exchange Commission (SEC), then you know all about the SEC’s recent scrutiny of Texas-based bank holdings company AmeriFirst. In a complaint filed Monday, July 2, the SEC leveled numerous accusations of investor fraud and financial mismanagement against the company, claiming that the company’s investment opportunities “attracted investors with false promises of safety,” and that company management used “much of their victim’s money for their personal benefit.” The SEC then filed an emergency action against the company to halt AmeriFirst’s offering of securities – Secured Debt Obligations, or SDOs – as well as freezing AmeriFirst’s assets.”The [SEC] contends that the SDOs are not guaranteed by any commercial bank and are not insured as represented, if at all,” the statement said. “Indeed, according to the complaint, the Fireman’s Fund and Allianz coverage represented in [AmeriFirst’s] offering materials does not exist and the Lloyd’s insurance provides only miniscule coverage at best.”
Naturally, AmeriFirst isn’t pleased by this.
“The defendants deny the allegations and intend to mount a vigorous defense,” AmeriFirst’s lawyer, Phillip Offill, told MN1 this morning. “We think the commission acted precipitously, without notice, and without providing us an opportunity to demonstrate to them that investors’ funds have been properly allocated, that the portfolio is generating more than sufficient returns to meet obligations to investors, and that, if necessary, the assets of the company are more than sufficient to return principal to investors who request redemptions.”
According to Offill, the SEC has misunderstood the purpose, and classification, of AmeriFirst.
“The [SEC] is relying upon the definition of an investment company, but I don’t think they’re going to get there,” Offill said. “The definition of an investment company is that its primary business is investing in securities of other issuers. So there’s a lot of cash tied up in money market accounts and government bonds and things of that nature, but it’s certainly not the bulk of the cash … it’s certainly not the business of the company.”
That’s not the only thing Offill claims that the SEC has gotten wrong. In the complaint filed Monday, the SEC said that AmeriFirst’s managing director, Jeffrey Bruteyn – a man whose financial past is checkered at best, and who was banned from any involvement in NASDAQ affairs as a result – transfers investor money to his own privately held company, Hess Financial, and then uses the transferred funds as his “personal checking account.” Offill says this allegation is completely off-base, and that Bruteyn’s use of Hess’ funds is completely legal.
“Hess Financial Group Corporation is Mr. Bruteyn’s company, and has been in business for many years,” Offill said. “It manages funds for Mr. Bruteyn’s family members and others, and the business of AmeriFirst is just a small portion of Hess’ business. Hess is Mr. Bruteyn’s company, Hess earns consulting fees from AmeriFirst, and … he spends the money that he earns the way he wants to.
“The [SEC] wants to suggest that these are investor funds that are somehow being misappropriated, or misallocated, and that’s simply not the case,” Offill continued. “Under Hess’ agreement with AmeriFirst, it earns consulting fees. Once those fees are earned, then obviously Hess does with those funds as it chooses. Because Hess is wholly owned by Mr. Bruteyn, he spends those funds – but those are funds that have already been earned by Hess. [They’re not] investor funds.”
AmeriFirst is concerned about how this lawsuit may be perceived by the public, but Offill contends that the law is on his clients’ side, urging the media to remember that the allegations are “just allegations.”
“The [SEC] launched this lawsuit without giving us an opportunity to respond or participate in an investigation – to show them where they are wrong and to show them where the facts fit together,” Offil said. “So, we intend to vigorously defend the lawsuit.
“The biggest defense here is one that is oriented toward making sure investors are protected, and that means showing that the assets are where they’re supposed to be, and that investor’s funds have been properly allocated – that the portfolio’s performing the way it’s supposed to perform – that no investor has ever been refused a redemption,” Offill added. “There is sufficient cash, cash equivalents, and other assets available to turn the portfolio if that’s what the [SEC] chooses to do. We think that would be a poor outcome for investors.”
