SEC CHARGES STOCK-COLLATERALIZED LOAN COMPANIES AND OWNERS WITH FRAUD

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Stock-Collateralized Loan Companies and Their Owner with Fraud

The Securities and Exchange Commission announced that, on September 26, 2013, it filed a civil action in the United States District Court for the Eastern District of Pennsylvania against William Dean Chapman, Jr. ("Chapman"), a resident of Sterling, Virginia, and his companies, Alexander Capital Markets, LLC and Alexander Financial, LLC (collectively, the "Alexander Companies"), charging them with operating a fraudulent stock-collateralized loan business.

The Commission's complaint alleges that, from at least June 2006 through June 2009, Chapman and the Alexander Companies raised money by inducing borrowers to transfer ownership of millions of shares of publicly traded securities to them as collateral for purported non-recourse loans based on false promises, including the promise to return the shares, or remit share profits in excess of accrued interest, to borrowers who repaid their loans. By no later than June 2006, Chapman and the Alexander Companies were doing nothing to ensure their ability to repurchase and return shares to borrowers who elected to repay their loans, or remit share profits in excess of accrued interest to borrowers. Instead they used the proceeds to pay other borrowers, for operating costs, and for their own benefit. This was despite the fact that many of the loan agreements entered into by Chapman and the Alexander Companies with borrowers assured borrowers that the defendants would engage in "hedging" strategies, would "hedge," or would enter into contracts with counterparties that would ensure that the portfolios could be returned. In so doing, they deliberately or recklessly misrepresented to new borrowers that, among other things, they could perform under new agreements. By early 2007, Chapman and the Alexander Companies were unable to honor maturing loan agreements, but continued to enter into new agreements under false pretenses. Defendants also fraudulently accepted over $2 million in loan repayments from at least two borrowers and used the funds to repay other borrowers and for Chapman's personal benefit.

As a result of the conduct described in the complaint, the Commission alleges that the defendants violated the antifraud provisions of the securities laws set forth in Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions, disgorgement together with prejudgment interest, and civil monetary penalties from the defendants.