“You can tell when you’re on the right track. It’s usually uphill”~ Amish Quote on Faith
On July 18, 2012, the SEC announced that it entered into a Deferred Prosecution Agreement with the Amish Helping Fund (AHF). The AHF is a non-profit corporation, managed by Amish “elders” that offers construction and mortgage loans by selling securities to young Amish families in Ohio. AHF has nearly 3,500 investors and, more than 1,200 borrowers with approximately $125 million in mortgage receivables.
The SEC began investigating the AHF because it was selling securities with an offering memorandum drafted in 1995, and never updated. The SEC alleged that the memorandum contained material misrepresentations about the fund and the securities being offered.
When informed of the SEC allegations, the AHF immediately cooperated. It updated its offering memorandum, retained a certified public accountant to perform ongoing audits, offered all existing investors the right of rescission, registered its securities offerings with the Ohio Division of Securities and consented to a cease-and- desist order with the agency.
Because of AHF’s complete and immediate response and cooperation, the SEC will not be prosecuting as long as AHF complies with the terms of the Deferred Prosecution Agreement. Robert Khuzami, The Director of SEC’s Division of Enforcement stated “Cooperation provides real and substantial benefits for companies that respond appropriately to the discovery of wrongdoing in their ranks.”
Let this be a lesson to those facing inquiries from the SEC and/or FINRA. Once your heart stops pounding after taking that first call from the SEC, you should calmly begin thinking about how to make your life easier. You could get defensive and not admit wrongdoing and perhaps begin finger pointing to their professionals involved- or- you could cooperate with the Agency and just do whatever needs to be done. You may have to admit to making a mistake, but it may help avoid costly litigation.
For the full SEC announcement and to see the complete terms of the Deferred Prosecution Agreement, click here.
Author: Jennifer Trowbridge, Stoecklein Law Group, LLP