Last week, the SEC obtained an emergency court order and froze the assets
of two Chicago investment firms. The two companies, Brewer Financial Services
LLC and Brewer Investment Advisors LLC, have been accused of participating
in a fraudulent offering of promissory notes and of using investor funds
to subsidize their own failing companies.
According to an Oct. 29 SEC Litigation Release, the Commission has charged
that from mid 2009 through the end of September 2010, the firms' owners,
Steven Brewer and Adam Erickson, raised approximately $5.6 million from
74 investors by offering investments in promissory notes. The notes were
issued by an Isle of Man company, and investors were told: "their
money would be used to repay certain debts of the issuer's parent
company, and thereby release assets that would be used to secure their
promissory note obligations."
The SEC has also charged that instead of investing the funds in the manner
represented in the offering materials, Brewer and Erickson disbursed 90
percent of the funds raised to the firms' parent company, Brewer Investment
Group, and its subsidiaries, all of which were in financial trouble. In
misrepresentations of how the funds would be used, Brewer and Erickson allegedly also misrepresented
the risk level associated with the investment and failed to disclose the
true financial health of the companies to investors.
Donald Hoerl, director of the SEC's Denver office, said: "Brewer
and Erickson raised substantial funds to capitalize their own struggling
business operations while leading unsuspecting investors to believe their
investments would be secured by collateral. They went so far as to continue
selling promissory notes to new investors even after they discontinued
making interest payments to earlier investors."
In addition to the preliminary injunction against Brewer, Erickson, the
two Chicago firms, and the parent company BIG granted by the Honorable
Blanche M. Manning in the U.S. District Court in Chicago, the SEC has
also requested permanent injunctions, disgorgement plus pre-judgment interest,
and financial penalties against all of the defendants.