U.S. SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission v. Providence Financial Investments, Inc., Providence Fixed Income Fund, LLC, Jeffory Churchfield, and Jack Jarrell, Civil Action No. 0:16-cv-1877 WMW-FLN (D. Minn. filed June 7, 2016)SEC Obtains Emergency Relief Against Providence Financial Investments, Inc. and Providence Fixed Income Fund, LLC
On June 7, 2016, the Securities and Exchange Commission filed an emergency action against defendants Providence Financial Investments, Inc. ("Providence Financial") and Providence Fixed Income Fund, LLC ("Providence Fund"). Also named in the SEC's complaint are defendants Jeffory Churchfield and Jack Jarrell.
The SEC's complaint, filed in federal court in Minnesota, alleges that:
- Providence Financial and Providence Fund raised more
than $64 million from over 400 investors throughout the United States
through the unregistered sale of promissory notes that pay annual
returns generally ranging from 12% to 13%.
- Providence Financial and Providence Fund represented to
investors that their investment proceeds would be used to fund the
"factoring" of accounts receivable in Brazil. Contrary to these
representations, the complaint alleges that Providence Financial and
Providence Fund spent, at best, less than 68% of their investors' money
to finance Brazil factoring transactions, and both companies have been
unable to account for how they spent the remaining investor proceeds.
- Uses of investor funds that were not disclosed to
investors included the payment of 6% annual commissions to unregistered
brokers for selling the promissory notes as well as the payment of
millions of dollars to Providence Financial and Providence Fund
- In addition to misrepresenting to investors how they
would use investor funds, Providence Financial and Providence Fund
concealed from investors that the companies face serious financial
- Both companies hold very little cash or liquid assets,
while the amount of money owed to investors appears to dwarf the value
of any Brazilian receivables investments held by them. Compounding
these problems is a highly unfavorable foreign exchange rate which
hinders the repatriation of Brazilian assets to repay U.S investors.
- As a result, the only way Providence Financial and
Providence Fund are repaying their current investors is through the
proceeds of new investments.
- Jeffory Churchfield and Jack Jarrell acted as unregistered brokers and sold unregistered securities and that Jarrell violated the Investment Advisers Act by failing to disclose his compensation to his advisory clients.
On June 10, 2016, the Honorable Wilhelmina Wright of the United States District Court for the District of Minnesota entered an Order by consent as to Providence Financial and Providence Fund. Pursuant to the Order they both consented to the entry of preliminary injunctions enjoining them from violations of Section 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Order also specifically prohibits them from selling, offering to sell, or renewing any notes or securities to any persons or entities within the United States. The Order also prohibits certain transfers of funds including payments to certain principals of the defendants as well as the payments of any commissions or fees related to the sales of the promissory notes. In addition to other ancillary relief, the Order also requires Providence Financial and Providence Fund to produce both an accounting as well as audited consolidated financial statements meeting the requirements of Rule 502(b)(2)(B)(3) of Regulation D under the Securities Act of 1933. Providence Financial and Providence Fund agreed to the Order without admitting or denying the SEC's allegations.
The SEC's investigation in this matter is continuing.