SEC v. Gerald D. Kegley; and Prism Financial Services, LLC, No. 1:12-CV-1605, Northern District of Georgia (May 8, 2012) — Complaint

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF GEORGIA 

ATLANTA DIVISION 

SECURITIES AND EXCHANGE 
COMMISSION, 
Plaintiff, Civil Action No. 
v. 
1  12·CV-1605 
GERALD D. KEGLEY and 

PRISM FINANICAL SERVICES, LLC, 

Defendants. 
COMPLAINT FOR INJUNCTIVE RELIEF 
Plaintiff, Securities and Exchange Commission (the "Commission"), files its 
complaint and alleges that: 
OVERVIEW 
1. This case concerns Gerald D. Kegley ("Kegley") and the company he 

operates, Prism Financial Services, LLC ("Prism"). From at least April 8, 2010, to 

-at---l€ast-August 20, 2010, DefendaBt-s-participated in a "Prime BaH:k~-S€hem-e--------__ H______ __ 

conducted by Patricia Diane Gruber ("Gruber"), Kadar Josey, Elite Resources, 

LLC ("Elite") and Elite3 Holding Corp (collectively known as the "Elite Entities"). 


The "Prime Bank" scheme defrauded at least nine investors of approximately 
$2.85 million. 
2. The Elite Entities represented to victims that they could, after investing, 
draw upon bank issued guarantees worth millions 
of dollars without incurring a 
corresponding obligation to repay the withdrawn funds. In at least one case, the 
Elite Entities represented that the investor would receive a 40,000% return on the 
investment. 
3. Investors were told in written agreements that their funds would be: (a) used 
to purchase the described bank guarantees; and (b) held in escrow until the bank 
guarantees were issued. No bank guarantees were ever obtained and the Elite 
Entities and Defendants misappropriated investor funds. 
4. The investment operations described in these written agreements 
do not 
exist. In fact, the only bank guarantee that was provided to an investor was 
fictitious. 
5. Kegley and Prism were instrumental in the "Prime Bank" scheme. They 
were directly responsible for introducing six individuals who invested $1.95 
2 


6. Specifically, Kegley transmitted to investors the misrepresentations made by 
the Elite Entities about: (a) the existence of bank guarantees purportedly paying an 
excessively high rate ofreturn; and (b) that any funds invested would remain in 
escrow until the bank guarantee was funded. 
7. Kegley separately misrepresented that he and Prism would be paid 
commissions only once the investor received the bank guarantee. In actuality, 
Kegley and Prism were paid commissions relatively soon after the investors 
transferred the money. 
8. Kegley also told investors that he had worked with Gruber on a previous 
successful bank guarantee program. In fact, Kegley believed that this purportedly 
successful program was actually a fraudulent scheme and reported this belief to the 
Federal Bureau 
of Investigation. Furthermore, Kegley admitted that he believed 
that all bank guarantee programs were fraudulent. 
VIOLATIONS 
9. Defendants have engaged and, unless restrained and enjoined by this Court, 
will continue to engage in acts and practices that constitute and will constitute 
-  ------¥iolati-on~LO-£Sec1ions5(_a)-,-{c)rand-L'Z(a) oftheSecllrities Act ofJ933-C"Securities. _ 
Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)] and Section lOeb) ofthe Securities 
3 

Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 
thereunder [17 C.F.R. § 240.10b-5] and Section 15(a) 
of the Exchange Act [15 
U.S.C. § 780(a)]. 
10. Additionally, Defendants have aided and abetted and, unless restrained and 
enjoined by this Court, 
will continue to aid and abet violations of Section 17(a) of 
the Securities Act [15 U.S.C.§ 77q(a)] and Section 10(b) of the Exchange Act [15 
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 
JURISDICTION AND VENUE 
11. The Commission brings this action pursuant to Sections 20 and 22 ofthe 
Securities Act [15 U.S.C. 
§§ 77t and 77v] and Sections 21(d) and 21(e) of the 
Exchange Act [15 U.S.C. 
§§ 78u(d) and 78u(e)] to enjoin Defendants from 
engaging in the transactions, acts, practices, and courses ofbusiness alleged in this 
complaint, and transactions, acts, practices, and courses 
of business of similar purport 
and object, for civil penalties and for other equitable relief 
12. This Court has jurisdiction over this action pursuant to Section 22 
of the 
Securities Act [15 U.S.C. § 77v] and Sections 21(d), 21(e), and 27 
of the Exchange 
.u.o A,ct [15 U.S.C. §§ 78u(d), 7~,--aml-1~~•....~~-------~---.---.-
4 


13. Defendants, directly and indirectly, made use of the mails, the means and 
instruments 
of transportation and communication in interstate commerce and the 
means and instrumentalities 
of interstate commerce in connection with the 
transactions, acts, practices, and courses 
of business alleged in this complaint and 
made use 
of mail and means of instrumentality of interstate commerce to effect 
transactions, or to induce or to attempt to induce the purchase or sale 
of securities 
alleged in this complaint. 
14. Certain ofthe transactions, acts, practices, and courses of business 
constituting violations 
ofthe Securities Act and the Exchange Act occurred in the 
Northern District of Georgia. 
15. Defendants, unless restrained and enjoined by this Court, will continue to 
engage in the transactions, acts, practices, and courses 
of business alleged in this 
complaint, and in transactions, acts, practices, and courses of business of similar 
purport and obj ect. 
THE DEFENDANTS 
16. Gerald Don Kegley, age 41, is a resident of Chandler, Arizona. Kegley is 
u ________the sale owner--3.lld-operator ofPriSIIl--.--Be-is---also th~sQn-in-lawof Gruber, 
5 


the managing member of Elite and the director ofElite3. Kegley has never 
registered 
as a broker-dealer or as an investment adviser. 
17. Prism Financial Services, LLC, is  an Arizona limited liability company that 
is  located in Chandler, Arizona and is owned and operated by Kegley, and Kegley 
was solely responsible for Prism's operations. Kegley created Prism as a broker or 
intermediary that would receive commissions for introducing customers into bank 
guarantee investments. 
RELA TED PARTIES 
18. Patricia Diane Gruber, age 59, ofDunwoody, Georgia, is the managing 
member 
ofElite and the director ofElite3. Gruber was named as a defendant in 
SEC v. Elite Resources, LLC, et aI., Civil Action No. 1:10-cv-03522 (N.D. Ga. 
2010) in connection with her role in the "Prime Bank" scheme. A consent order 
has been entered against Gruber imposing a permanent injunction but leaving 
monetary issues for later resolution. 
19. Kadar M. Josey, age 41, 
ofTucker, Georgia, is the secretary and chief 
financial officer 
of Elite and the secretary ofElite3. Josey was named as a 
----~-n-de-fendant-in--SEC-¥.--El-i-te Resources, LLC, et aI., Civ-il-Acti~. 1: 10 Cy 0352-2-----------------­
(N.D. Ga. 2010) in connection with his role in the "Prime Bank" scheme. A 
6 


--------
consent order has been entered against Josey imposing a permanent injunction but 
leaving monetary issues for later resolution. 
20. Elite Resources LLC is a Georgia limited liability company formed in 
September 2009. Gruber is  its managing member and Josey is  its secretary and 
chief financial officer. Elite Resources was named as a defendant in SEC v. Elite 
Resources, LLC, et aI., Civil Action No. 1:10-cv-03522 (N.D. Ga. 2010) in 
connection with its role in the "Prime Bank" scheme. A consent order has been 
entered against Elite Resources imposing a permanent injunction but leaving 
monetary issues for later resolution. 
21. Elite3 Holding Corp. is  purportedly a Grand Cayman Corporation with 
Gruber as its Director and Josey as its counsel and secretary. Elite3 was named 
as 
a defendant in SEC v. Elite Resources, LLC, et aI., Civil Action No.1: 1 0-cv-03522 
(N.D. Ga. 2010) in connection with its role in the "Prime Bank" scheme. A 
consent order has been entered against Elite3 imposing a permanent injunction but 
leaving monetary issues for later resolution. 
7 


THE "PRIME BANK" SCHEME 

22. From at least April 8, 2010 to at least August 20, 2010, the Elite Entities 
conducted a fraudulent scheme that defrauded at least nine investors throughout the 
country and Canada 
of $2.85 million. 
23. The Elite Entities told investors that they could, after investing, draw upon 
bank issued guarantees worth millions 
of dollars without having to repay the 
withdrawn funds. 
24. The Elite Entities represented to investors that their funds would be: (a) 
used to purchase the described bank guarantees; and (b) held in escrow until the 
bank guarantees were issued. Both representations were false. 
25. 
No bank guarantees offering the exorbitant returns promised by the Elite 
Entities exist. 
26. Moreover, investor funds were not held in escrow. Instead, the funds were 
misappropriated immediately upon receipt. 
DEFENDANTS' ROLE IN THE FRAUDULENT SCHEME 
27. Kegley and Prism participated in this fraudulent scheme by serving as 
----nu __ ••• __• unregistered broker dealer-s-wh&int-reeuced six-mve-s-tors to the Elite Entities. 
These six individuals invested $1.95 million in the scheme. 
8 

28. Kegley and Prism received commissions from the funds invested by the 
individuals they introduced to the fraudulent scheme. Specifically, Kegley and 
Prism were paid at least $99,940 by the Elite Entities from funds invested by 
individuals Kegley and Prism introduced to the fraudulent scheme. 
29. Kegley and Prism were a key part 
of the fraudulent scheme. Kegley and 
Prism acted 
as conduits of information between the Elite Entities and the investors. 
30. Kegley and Prism recruited investors and gathered information from each 
investor detailing the investor's name, address, phone number, legal counsel 
(if 
any), and proof of funds. Kegley and Prism then forwarded that information to the 
Elite Entities. 
31. Kegley and Prism provided investors with the Elite Entities' claims about 
the "Prime Bank" investments and the rates 
ofreturns. Kegley and Prism also 
communicated to investors the Elite Entities' representation that all investor funds 
would remain in escrow until the bank guarantee was issued. Kegley and Prism 
repeated these misrepresentations to investors despite knowing or being severely 
reckless in not knowing that they were false. 
9 


32. In addition to transmitting these material misrepresentations about the 
"Prime Bank" scheme to investors, Kegley and Prism also made their own 
independent material misrepresentations to investors. 
33. First, Kegley told investors that he and Prism would receive their 
commission only after the bank guarantee was acquired or funded. 
34. Defendants knew or were reckless in not knowing that this representation 
was false when made because as soon as the Elite Entities received investor funds, 
and prior to the bank guarantee's being funded or acquired, Gruber sent 
commission payments from investor funds to accounts controlled by Kegley. 
35. 
Second, Kegley told investors that he had been involved in a prior successful 
investment opportunity with Gruber in 2009. 
36. Defendants knew or were reckless in not knowing that this representation 
was false when made because the 2009 investment opportunity was not successful. 
In fact, Kegley actually reported the principal organizer 
ofthat investment 
opportunity to the Federal Bureau of Investigation because he believed that the 
investment opportunity was fraudulent. 
10 


37. Finally, Kegley failed to disclose to investors that he had never seen a bank 
guarantee he did not believe was fraudulent. Kegley admitted that he believed 
bank guarantees to be money-losing ventures and a total fraud. 
NO REGISTRATION STATEMENT 
WAS FILED WITH THE COMMISSION 
38. The bank guarantee investments offered by Kegley and Prism qualify as 
"securities" as that term is defined under federal securities laws. 
39. No registration statement or exemptive form was filed with the Commission 
with respect to the offer and sale 
ofthe bank guarantee investments by Kegley and 
Prism. 
40. No investor was provided with financial statements in connection with the 
offer and sale 
of bank guarantee investments by Kegley and Prism. 
41. Kegley and Prism made no effort to obtain financial information from the 
individuals who invested in the "Prime Bank" scheme to determine whether the 
individuals qualified as accredited investors. 
42. No exemption applies to the offer and sale 
of the bank guarantee 
investments by Kegley and Prism. 
~---~-----
11 


KEGLEY AND PRISM ACTED AS UNREGISTERED BROKERS 
43. Kegley and Prism operated as unregistered broker-dealers in the "Prime 
Bank" scheme. During the relevant time period, neither Kegley nor Prism were 
registered with the Commission in any capacity. 
44. Kegley and Prism held themselves out as broker-dealers in a "Fee 
Agreement" executed by Prism and the investors. The first sentence in the 
agreement reads: "This agreement 
is made ... by and between Prism Financial 
Services, LLC, hereinafter referred to as 'Broker'." 
45. Moreover, Prism's signature block on the signature page 
of the "Fee 
Agreement" reads: "Broker: Jerry Kegley." 
46. The express terms 
of the "Fee Agreement" establish that Prism and Kegley 
actually operated 
as brokers. According to the "Fee Agreement," Prism was to 
receive a transaction based commission as a fee for its services 
of 0.5% of the face 
value 
ofthe bank guarantee. 
47. Kegley's communications to investors also establish that he held himself and 
Prism out as broker-dealers. In one email to an individual representing an investor, 
---------------Keg-l-ey-wrot-e--that "there are-nQ-Qther-br-Oker's [sic] beyond my company." Kegley 
also self-identified as "simply a broker." 

12 


COUNT I-FRAUD 
Violations of Section 17(a)(I) of the Securities Act 
[15 U.S.C. 
§ 779(a)(1)] 
48. Paragraphs 1 through 47 are hereby re-alleged and are incorporated herein 
by reference. 
49. From at least April 8,  2010, to at least August 20,2010, Defendants, in the 
offer and sale 
ofthe securities described herein, by the use of means and instruments 
oftransportation and communication in interstate commerce and by use of the mails, 
directly and indirectly, employed devices, schemes and artifices to defraud 
purchasers 
of such securities, all as more particularly described above. 
50. Defendants kn'owingly, intentionally, and/or recklessly engaged in the 
aforementioned devices, schemes and artifices to defraud. 
51. While engaging in the course 
of conduct described above, Defendants acted 
with scienter, that is, with an intent to deceive, manipulate or defraud or with a 
severely reckless disregard for the truth. 
52. 
By reason ofthe foregoing, Defendants, directly and indirectly, have 
violated and, unless enjoined, will continue to violate Section 17(a)(I) 
of the 
Securities Act [15 U.S.C. 
§ 77q(a)(l)]. 
13 


COUNT II-FRAUD 
Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act 
[15 U.S.C. 
§§ 77g(a)(2) and 77g(a)(3)] 
53. Paragraphs 1 through 47 are hereby reaUeged and are incorporated herein by 
reference. 
54. From at least April 8, 2010, to at least August 
20,2010, Defendants, in the 
offer and sale 
of the securities described herein, by use of means and instruments 
of transportation and communication in interstate commerce and by use ofthe 
mails, directly and indirectly: 
a. obtained money and property by means ofuntrue statements of 
material fact and omissions to state material facts necessary in order to make the 
statements made, in light of the circumstances under which they were made, not 
misleading; and 
b. engaged in transactions, practices and courses of business 
which would and did operate as a fraud and deceit upon the purchasers of such 
securities, 
all as more particularly described above. 
14 


55. By reason ofthe foregoing, Defendants, directly and indirectly, have 
violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 
17(a)(3) 
ofthe Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. 
COUNT III-FRAUD 
Violations of Section lOeb) of the Exchange Act 

[15 U.S.C. 
§ 78j(b))and Rule IOb-5 thereunder [17 C.F.R. § 240.10b-5) 

56. Paragraphs 1 through 47 are hereby re-alleged and are incorporated herein 
by reference. 
57. From at least April 
8, 2010, to at least August 20,2010, Defendants, in 
connection with the purchase and sale 
of securities described herein, by the use of 
the means and instrumentalities of interstate commerce and by use ofthe mails, 
directly and indirectly: 
a. employed devices, schemes, and artifices to defraud; 
b. made untrue statements 
of material facts and omitted to state material 
facts necessary in order to make the statements made, in light 
ofthe circumstances 
under which they were made, not misieading; and 
did operate as a fraud and deceit upon the purchasers 
ofsuch securities, 
15 

all as more particularly described above. 
58. Defendants knowingly, intentionally, and/or recklessly engaged in the 
aforementioned devices, schemes and artifices to defraud, made untrue statements 
of material facts and omitted to state material facts, and engaged in fraudulent acts, 
practices and courses 
of business. In engaging in such conduct, Defendants acted 
with scienter, that is, with an intent to deceive, manipulate or defraud or with a 
severely reckless disregard for the truth. 
59. By reason 
of the foregoing, Defendants, directly and indirectly, have 
violated and, unless enjoined, will continue to violate Section 1 
O(b) of the 
Exchange Act 
[15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 
240.10b-5]. 
COUNT IV-UNREGISTERED OFFERING OF SECURITIES 

Violations of Sections 5(a) and 5(c) of the Securities Act 

[15 U.S.C. §§ 77e(a) and 77e(c)) 

60. Paragraphs 1 through 47 are hereby realleged and are incorporated herein by 
reference. 
16 


61. No registration statement has been filed or is  in effect with the Commission 
pursuant to the Securities Act and no exemption from registration exists with 
respect to the transactions described herein. 
62. From at least April 
8, 2010, to at least August 20, 2010, Defendants, singly 
and in concert, have: 
(a) made use 
of the means or instruments of transportation or 
communication in interstate commerce or 
of the mails to sell 
securities, through the use or medium 
of a prospectus or otherwise; 
(b) carried securities or caused such securities to be carried through 
the mails or in interstate commerce, by any means or instruments 
of 
transportation, for the purpose of sale or for delivery after sale; and 
(c) made use 
ofthe means or instruments oftransportation or 
communication in interstate commerce or of the mails to offer to sell 
or offer to buy securities, through the use or medium 
of any 
prospectus or otherwise, 
without a registration statement having been filed with the Commission 
as to such 
-----------wGUr-i-tW-s-,­
17 


63. By reason ofthe foregoing, Defendants, directly and indirectly, singly and in 
concert, have violated Sections 5(a) and 5(c) 
ofthe Securities Act [15 U.S.C. §§ 
77e(a) and 77e(c)]. 
COUNT V -AIDING AND ABETTING 

Aiding and Abetting Violations of Section 17(a) of the Securities Act and Section 

10(b) 
of the Exchange Act and Rule 10b-5 thereunder 

[15 U.S.C. § 77 g(a), 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5] 

64. Paragraphs 1 through 47 are hereby restated and incorporated by reference. 
65. From 
at least April 8, 2010, to at least August 20,2010, Defendants aided 
and abetted the Elite Entities in their violations 
of Section 17(a) ofthe Securities 
Act [15 U.S.C. § 77 q(a)] and Section 10(b) 
ofthe Exchange Act [15 U.S.C. § 
78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 
§ 240.10b-5] by knowingly or 
recklessly providing substantial assistance to the Elite Entities in furtherance ofthe 
fraudulent scheme. 
COUNT VI -EFFECTING SECURITIES TRANSACTIONS FOR 

THE ACCOUNTS OF OTHERS WITHOUT BEING REGISTERED 

WITH THE COMMISSION AS A BROKER-DEALER 

Violations of Section 15(a) of the Exchange Act 
[15 U.S.C. § 78o(a)] 
-­---~-~------~----.. -------­
18 


67. From at least April 8,2010, to at least August 20,2010, Defendants have 
been using the mails and the means and instrumentalities 
of interstate commerce, 
to effect transactions in, 
or induce or attempt to induce the purchase or sale of 
securities, without registering with the Commission as a broker, as more 
particularly described above 
.. 
68. By reason ofthe foregoing, Defendants have violated Section 15(a) ofthe 
Exchange Act 
[15 U.S.C. § 780(a)]. 
PRAYER FOR RELIEF 
WHEREFORE, Plaintiff Commission respectfully prays for: 
I. 
Findings of fact and conclusions oflaw pursuant to Rule 52 ofthe Federal 
Rules 
ofCivil Procedure, finding that Defendants named herein committed the 
violations alleged herein. 
II. 
A permanent injunction enjoining Defendants, their officers, agents, servants, 
employees, and attorneys from violating, directly 
or indirectly, Sections 5(a), (c), 
---
uHu
--aOO--l7(a) ofthe S~iesAct [~ U.S:C. §§ 77~+7~-G-)~R~+7-Gf(~}-afKl--~-----·uu..._uuu_ .. 
Section 10(b) ofthe Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder 
19 

[17 C.F.R. § 240.10b-5] and Section 15(a) of the Exchange Act [15 U.S.C. § 
780(a)], and enjoining Defendants from aiding and abetting any violations 
of 
Section 17(a) of the Securities Act [15 U.S.C. § 77 q(a)] and Section 10(b) of the 
Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 
240.10b-5]. 
III. 
An order requiring an accounting by Defendants of the use of proceeds ofthe 
fraudulent conduct described in this Complaint and the disgorgement by Defendants 
ofall ill-gotten gains or unjust enrichment with prejudgment interest, to effect the 
remedial purposes 
ofthe federal securities laws. 
IV. 
An order pursuant to Section 20(d) ofthe Securities Act [15 U.S.C. §77t(d)] 
and Section 21(d)(3) 
of the Exchange Act [15 U.S.C. §78u(d)(3)] imposing civil 
penalties against Defendants. 
V. 
Such other and further relief as this Court may deem just, equitable, and 
_____________ -B.ppropriatein-connection-with-the-enfru:cemen.~l__8€G_uFiti~_er'-----­
the protection ofinvestors. 
20 


Dated: May 8, 2012 
Respectfully submitted, 
~~l~ 

M. Graham Loomis 
Regional Trial Counsel 
Georgia Bar No. 457868 
Email: [email protected] 
Kristin B. Wilhelm 
Senior Trial Counsel 
Georgia Bar No. 759054 
Email: [email protected] 
COUNSEL FOR PLAINTIFF 
Securities and Exchange 
Commission 
950 East Paces Ferry Road, N.E. 
Suite 900 
Atlanta, Georgia 30326-1382 
Tel: (404) 842-7600 
Fax: (404) 842-7666 
21 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF GEORGIA 


ATLANTA DIVISION 


SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, Civil Action No. 
v. 

1 12·CV-1605 
GERALD D. KEGLEY and 

PRISM FINANICAL SERVICES, LLC, 


Defendants. 

COMPLAINT FOR INJUNCTIVE RELIEF 

Plaintiff, Securities and Exchange Commission (the "Commission"), files its 

complaint and alleges that: 

OVERVIEW 

1. This case concerns Gerald D. Kegley ("Kegley") and the company he 


operates, Prism Financial Services, LLC ("Prism"). From at least April 8, 2010, to 


-at---l€ast-August 20, 2010, DefendaBt-s-participated in a "Prime BaH:k~-S€hem-e--- ----- __ H______ __ 


conducted by Patricia Diane Gruber ("Gruber"), Kadar Josey, Elite Resources, 


LLC ("Elite") and Elite3 Holding Corp (collectively known as the "Elite Entities"). 




The "Prime Bank" scheme defrauded at least nine investors of approximately 

$2.85 million. 

2. The Elite Entities represented to victims that they could, after investing, 

draw upon bank issued guarantees worth millions of dollars without incurring a 

corresponding obligation to repay the withdrawn funds. In at least one case, the 

Elite Entities represented that the investor would receive a 40,000% return on the 

investment. 

3. Investors were told in written agreements that their funds would be: (a) used 

to purchase the described bank guarantees; and (b) held in escrow until the bank 

guarantees were issued. No bank guarantees were ever obtained and the Elite 

Entities and Defendants misappropriated investor funds. 

4. The investment operations described in these written agreements do not 

exist. In fact, the only bank guarantee that was provided to an investor was 

fictitious. 

5. Kegley and Prism were instrumental in the "Prime Bank" scheme. They 

were directly responsible for introducing six individuals who invested $1.95 

2 




6. Specifically, Kegley transmitted to investors the misrepresentations made by 

the Elite Entities about: (a) the existence of bank guarantees purportedly paying an 

excessively high rate of return; and (b) that any funds invested would remain in 

escrow until the bank guarantee was funded. 

7. Kegley separately misrepresented that he and Prism would be paid 

commissions only once the investor received the bank guarantee. In actuality, 

Kegley and Prism were paid commissions relatively soon after the investors 

transferred the money. 

8. Kegley also told investors that he had worked with Gruber on a previous 

successful bank guarantee program. In fact, Kegley believed that this purportedly 

successful program was actually a fraudulent scheme and reported this belief to the 

Federal Bureau of Investigation. Furthermore, Kegley admitted that he believed 

that all bank guarantee programs were fraudulent. 

VIOLATIONS 

9. Defendants have engaged and, unless restrained and enjoined by this Court, 

will continue to engage in acts and practices that constitute and will constitute 

- -- ----¥iolati-on~LO-£Sec1ions5(_a)-,-{c)rand-L'Z(a) of theSecllrities Act ofJ933-C"Securities. _ 

Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)] and Section lOeb) of the Securities 

3 



Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 

thereunder [17 C.F.R. § 240.10b-5] and Section 15(a) of the Exchange Act [15 

U.S.C. § 780(a)]. 

10. Additionally, Defendants have aided and abetted and, unless restrained and 

enjoined by this Court, will continue to aid and abet violations of Section 17(a) of 

the Securities Act [15 U.S.C.§ 77q(a)] and Section 10(b) of the Exchange Act [15 

U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

JURISDICTION AND VENUE 

11. The Commission brings this action pursuant to Sections 20 and 22 of the 

Securities Act [15 U.S.C. §§ 77t and 77v] and Sections 21(d) and 21(e) of the 

Exchange Act [15 U.S.C. §§ 78u(d) and 78u(e)] to enjoin Defendants from 

engaging in the transactions, acts, practices, and courses ofbusiness alleged in this 

complaint, and transactions, acts, practices, and courses of business of similar purport 

and object, for civil penalties and for other equitable relief 

12. This Court has jurisdiction over this action pursuant to Section 22 of the 

Securities Act [15 U.S.C. § 77v] and Sections 21(d), 21(e), and 27 of the Exchange 

.u.o A,ct [15 U.S.C. §§ 78u(d), 7~,--aml-1~~•....~~-------~---.---.-

4 




13. Defendants, directly and indirectly, made use of the mails, the means and 

instruments of transportation and communication in interstate commerce and the 

means and instrumentalities of interstate commerce in connection with the 

transactions, acts, practices, and courses of business alleged in this complaint and 

made use of mail and means of instrumentality of interstate commerce to effect 

transactions, or to induce or to attempt to induce the purchase or sale of securities 

alleged in this complaint. 

14. Certain of the transactions, acts, practices, and courses of business 

constituting violations of the Securities Act and the Exchange Act occurred in the 

Northern District of Georgia. 

15. Defendants, unless restrained and enjoined by this Court, will continue to 

engage in the transactions, acts, practices, and courses of business alleged in this 

complaint, and in transactions, acts, practices, and courses of business of similar 

purport and obj ect. 

THE DEFENDANTS 

16. Gerald Don Kegley, age 41, is a resident of Chandler, Arizona. Kegley is 

u ________the sale owner--3.lld-operator ofPriSIIl--.--Be-is---also th~sQn-in-law of Gruber, 

5 




the managing member of Elite and the director ofElite3. Kegley has never 

registered as a broker-dealer or as an investment adviser. 

17. Prism Financial Services, LLC, is an Arizona limited liability company that 

is located in Chandler, Arizona and is owned and operated by Kegley, and Kegley 

was solely responsible for Prism's operations. Kegley created Prism as a broker or 

intermediary that would receive commissions for introducing customers into bank 

guarantee investments. 

RELA TED PARTIES 

18. Patricia Diane Gruber, age 59, ofDunwoody, Georgia, is the managing 

member ofElite and the director ofElite3. Gruber was named as a defendant in 

SEC v. Elite Resources, LLC, et aI., Civil Action No. 1:10-cv-03522 (N.D. Ga. 

2010) in connection with her role in the "Prime Bank" scheme. A consent order 

has been entered against Gruber imposing a permanent injunction but leaving 

monetary issues for later resolution. 

19. Kadar M. Josey, age 41, of Tucker, Georgia, is the secretary and chief 

financial officer of Elite and the secretary ofElite3. Josey was named as a 

- --- ~-n-de-fendant-in--SEC-¥.--El-i-te Resources, LLC, et aI., Civ-il-Acti~. 1: 10 Cy 0352-2------ -----------­

(N.D. Ga. 2010) in connection with his role in the "Prime Bank" scheme. A 

6 




--------

consent order has been entered against Josey imposing a permanent injunction but 

leaving monetary issues for later resolution. 

20. Elite Resources LLC is a Georgia limited liability company formed in 

September 2009. Gruber is its managing member and Josey is its secretary and 

chief financial officer. Elite Resources was named as a defendant in SEC v. Elite 

Resources, LLC, et aI., Civil Action No. 1:10-cv-03522 (N.D. Ga. 2010) in 

connection with its role in the "Prime Bank" scheme. A consent order has been 

entered against Elite Resources imposing a permanent injunction but leaving 

monetary issues for later resolution. 

21. Elite3 Holding Corp. is purportedly a Grand Cayman Corporation with 

Gruber as its Director and Josey as its counsel and secretary. Elite3 was named as 

a defendant in SEC v. Elite Resources, LLC, et aI., Civil Action No.1: 1 0-cv-03522 

(N.D. Ga. 2010) in connection with its role in the "Prime Bank" scheme. A 

consent order has been entered against Elite3 imposing a permanent injunction but 

leaving monetary issues for later resolution. 

7 




THE "PRIME BANK" SCHEME 


22. From at least April 8, 2010 to at least August 20, 2010, the Elite Entities 

conducted a fraudulent scheme that defrauded at least nine investors throughout the 

country and Canada of $2.85 million. 

23. The Elite Entities told investors that they could, after investing, draw upon 

bank issued guarantees worth millions of dollars without having to repay the 

withdrawn funds. 

24. The Elite Entities represented to investors that their funds would be: (a) 

used to purchase the described bank guarantees; and (b) held in escrow until the 

bank guarantees were issued. Both representations were false. 

25. No bank guarantees offering the exorbitant returns promised by the Elite 

Entities exist. 

26. Moreover, investor funds were not held in escrow. Instead, the funds were 

misappropriated immediately upon receipt. 

DEFENDANTS' ROLE IN THE FRAUDULENT SCHEME 

27. Kegley and Prism participated in this fraudulent scheme by serving as 

---- nu __ ••• __• unregistered broker dealer-s-wh&int-reeuced six-mve-s-tors to the Elite Entities. 

These six individuals invested $1.95 million in the scheme. 

8 



28. Kegley and Prism received commissions from the funds invested by the 

individuals they introduced to the fraudulent scheme. Specifically, Kegley and 

Prism were paid at least $99,940 by the Elite Entities from funds invested by 

individuals Kegley and Prism introduced to the fraudulent scheme. 

29. Kegley and Prism were a key part of the fraudulent scheme. Kegley and 

Prism acted as conduits of information between the Elite Entities and the investors. 

30. Kegley and Prism recruited investors and gathered information from each 

investor detailing the investor's name, address, phone number, legal counsel (if 

any), and proof of funds. Kegley and Prism then forwarded that information to the 

Elite Entities. 

31. Kegley and Prism provided investors with the Elite Entities' claims about 

the "Prime Bank" investments and the rates of returns. Kegley and Prism also 

communicated to investors the Elite Entities' representation that all investor funds 

would remain in escrow until the bank guarantee was issued. Kegley and Prism 

repeated these misrepresentations to investors despite knowing or being severely 

reckless in not knowing that they were false. 

9 




32. In addition to transmitting these material misrepresentations about the 

"Prime Bank" scheme to investors, Kegley and Prism also made their own 

independent material misrepresentations to investors. 

33. First, Kegley told investors that he and Prism would receive their 

commission only after the bank guarantee was acquired or funded. 

34. Defendants knew or were reckless in not knowing that this representation 

was false when made because as soon as the Elite Entities received investor funds, 

and prior to the bank guarantee's being funded or acquired, Gruber sent 

commission payments from investor funds to accounts controlled by Kegley. 

35. Second, Kegley told investors that he had been involved in a prior successful 

investment opportunity with Gruber in 2009. 

36. Defendants knew or were reckless in not knowing that this representation 

was false when made because the 2009 investment opportunity was not successful. 

In fact, Kegley actually reported the principal organizer of that investment 

opportunity to the Federal Bureau of Investigation because he believed that the 

investment opportunity was fraudulent. 

10 




37. Finally, Kegley failed to disclose to investors that he had never seen a bank 

guarantee he did not believe was fraudulent. Kegley admitted that he believed 

bank guarantees to be money-losing ventures and a total fraud. 

NO REGISTRATION STATEMENT 
WAS FILED WITH THE COMMISSION 

38. The bank guarantee investments offered by Kegley and Prism qualify as 

"securities" as that term is defined under federal securities laws. 

39. No registration statement or exemptive form was filed with the Commission 

with respect to the offer and sale of the bank guarantee investments by Kegley and 

Prism. 

40. No investor was provided with financial statements in connection with the 

offer and sale of bank guarantee investments by Kegley and Prism. 

41. Kegley and Prism made no effort to obtain financial information from the 

individuals who invested in the "Prime Bank" scheme to determine whether the 

individuals qualified as accredited investors. 

42. No exemption applies to the offer and sale of the bank guarantee 

investments by Kegley and Prism. 
~---~-----

11 




KEGLEY AND PRISM ACTED AS UNREGISTERED BROKERS 

43. Kegley and Prism operated as unregistered broker-dealers in the "Prime 

Bank" scheme. During the relevant time period, neither Kegley nor Prism were 

registered with the Commission in any capacity. 

44. Kegley and Prism held themselves out as broker-dealers in a "Fee 

Agreement" executed by Prism and the investors. The first sentence in the 

agreement reads: "This agreement is made ... by and between Prism Financial 

Services, LLC, hereinafter referred to as 'Broker'." 

45. Moreover, Prism's signature block on the signature page of the "Fee 

Agreement" reads: "Broker: Jerry Kegley." 

46. The express terms of the "Fee Agreement" establish that Prism and Kegley 

actually operated as brokers. According to the "Fee Agreement," Prism was to 

receive a transaction based commission as a fee for its services of 0.5% of the face 

value of the bank guarantee. 

47. Kegley's communications to investors also establish that he held himself and 

Prism out as broker-dealers. In one email to an individual representing an investor, 

---------------Keg-l-ey-wrot-e--that "there are-nQ-Qther-br-Oker's [sic] beyond my company." Kegley 

also self-identified as "simply a broker." 


12 




COUNT I-FRAUD 

Violations of Section 17(a)(I) of the Securities Act 
[15 U.S.C. § 779(a)(1)] 

48. Paragraphs 1 through 47 are hereby re-alleged and are incorporated herein 

by reference. 

49. From at least April 8, 2010, to at least August 20,2010, Defendants, in the 

offer and sale of the securities described herein, by the use of means and instruments 

of transportation and communication in interstate commerce and by use of the mails, 

directly and indirectly, employed devices, schemes and artifices to defraud 

purchasers of such securities, all as more particularly described above. 

50. Defendants kn'owingly, intentionally, and/or recklessly engaged in the 

aforementioned devices, schemes and artifices to defraud. 

51. While engaging in the course of conduct described above, Defendants acted 

with scienter, that is, with an intent to deceive, manipulate or defraud or with a 

severely reckless disregard for the truth. 

52. By reason of the foregoing, Defendants, directly and indirectly, have 

violated and, unless enjoined, will continue to violate Section 17(a)(I) of the 

Securities Act [15 U.S.C. § 77q(a)(l)]. 

13 




COUNT II-FRAUD 

Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act 
[15 U.S.C. §§ 77g(a)(2) and 77g(a)(3)] 

53. Paragraphs 1 through 47 are hereby reaUeged and are incorporated herein by 

reference. 

54. From at least April 8, 2010, to at least August 20,2010, Defendants, in the 

offer and sale of the securities described herein, by use of means and instruments 

of transportation and communication in interstate commerce and by use of the 

mails, directly and indirectly: 

a. obtained money and property by means ofuntrue statements of 

material fact and omissions to state material facts necessary in order to make the 

statements made, in light of the circumstances under which they were made, not 

misleading; and 

b. engaged in transactions, practices and courses of business 

which would and did operate as a fraud and deceit upon the purchasers of such 

securities, 

all as more particularly described above. 

14 




55. By reason of the foregoing, Defendants, directly and indirectly, have 

violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 

17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. 

COUNT III-FRAUD 

Violations of Section lOeb) of the Exchange Act 

[15 U.S.C. § 78j(b))and Rule IOb-5 thereunder [17 C.F.R. § 240.10b-5) 


56. Paragraphs 1 through 47 are hereby re-alleged and are incorporated herein 

by reference. 

57. From at least April 8, 2010, to at least August 20,2010, Defendants, in 

connection with the purchase and sale of securities described herein, by the use of 

the means and instrumentalities of interstate commerce and by use of the mails, 

directly and indirectly: 

a. employed devices, schemes, and artifices to defraud; 

b. made untrue statements of material facts and omitted to state material 

facts necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misieading; and 

did operate as a fraud and deceit upon the purchasers of such securities, 

15 



all as more particularly described above. 

58. Defendants knowingly, intentionally, and/or recklessly engaged in the 

aforementioned devices, schemes and artifices to defraud, made untrue statements 

of material facts and omitted to state material facts, and engaged in fraudulent acts, 

practices and courses of business. In engaging in such conduct, Defendants acted 

with scienter, that is, with an intent to deceive, manipulate or defraud or with a 

severely reckless disregard for the truth. 

59. By reason of the foregoing, Defendants, directly and indirectly, have 

violated and, unless enjoined, will continue to violate Section 1 O(b) of the 

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 

240.10b-5]. 

COUNT IV-UNREGISTERED OFFERING OF SECURITIES 


Violations of Sections 5(a) and 5(c) of the Securities Act 

[15 U.S.C. §§ 77e(a) and 77e(c)) 


60. Paragraphs 1 through 47 are hereby realleged and are incorporated herein by 

reference. 

16 




61. No registration statement has been filed or is in effect with the Commission 

pursuant to the Securities Act and no exemption from registration exists with 

respect to the transactions described herein. 

62. From at least April 8, 2010, to at least August 20, 2010, Defendants, singly 

and in concert, have: 

(a) made use of the means or instruments of transportation or 

communication in interstate commerce or of the mails to sell 

securities, through the use or medium of a prospectus or otherwise; 

(b) carried securities or caused such securities to be carried through 

the mails or in interstate commerce, by any means or instruments of 

transportation, for the purpose of sale or for delivery after sale; and 

(c) made use of the means or instruments of transportation or 

communication in interstate commerce or of the mails to offer to sell 

or offer to buy securities, through the use or medium of any 

prospectus or otherwise, 

without a registration statement having been filed with the Commission as to such 

------- ----wGUr-i-tW-s-,­

17 




63. By reason of the foregoing, Defendants, directly and indirectly, singly and in 

concert, have violated Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 

77e(a) and 77e(c)]. 

COUNT V - AIDING AND ABETTING 


Aiding and Abetting Violations of Section 17(a) of the Securities Act and Section 

10(b) of the Exchange Act and Rule 10b-5 thereunder 


[15 U.S.C. § 77 g(a), 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5] 


64. Paragraphs 1 through 47 are hereby restated and incorporated by reference. 

65. From at least April 8, 2010, to at least August 20,2010, Defendants aided 

and abetted the Elite Entities in their violations of Section 17(a) of the Securities 

Act [15 U.S.C. § 77 q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 

78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] by knowingly or 

recklessly providing substantial assistance to the Elite Entities in furtherance of the 

fraudulent scheme. 

COUNT VI - EFFECTING SECURITIES TRANSACTIONS FOR 

THE ACCOUNTS OF OTHERS WITHOUT BEING REGISTERED 


WITH THE COMMISSION AS A BROKER-DEALER 


Violations of Section 15(a) of the Exchange Act 
[15 U.S.C. § 78o(a)] 

- ­ ---~-~------~----.. -------­

18 




67. From at least April 8,2010, to at least August 20,2010, Defendants have 

been using the mails and the means and instrumentalities of interstate commerce, 

to effect transactions in, or induce or attempt to induce the purchase or sale of 

securities, without registering with the Commission as a broker, as more 

particularly described above .. 

68. By reason of the foregoing, Defendants have violated Section 15(a) of the 

Exchange Act [15 U.S.C. § 780(a)]. 

PRAYER FOR RELIEF 

WHEREFORE, Plaintiff Commission respectfully prays for: 

I. 

Findings of fact and conclusions of law pursuant to Rule 52 of the Federal 

Rules of Civil Procedure, finding that Defendants named herein committed the 

violations alleged herein. 

II. 

A permanent injunction enjoining Defendants, their officers, agents, servants, 

employees, and attorneys from violating, directly or indirectly, Sections 5(a), (c), 

---uHu--aOO--l7(a) of the S~ies Act [~ U.S:C. §§ 77~+7~-G-)~R~+7-Gf(~}-afKl--~-----·uu ..._uuu_ .. 

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder 

19 



[17 C.F.R. § 240.10b-5] and Section 15(a) of the Exchange Act [15 U.S.C. § 

780(a)], and enjoining Defendants from aiding and abetting any violations of 

Section 17(a) of the Securities Act [15 U.S.C. § 77 q(a)] and Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 

240.10b-5]. 

III. 

An order requiring an accounting by Defendants of the use of proceeds of the 

fraudulent conduct described in this Complaint and the disgorgement by Defendants 

ofall ill-gotten gains or unjust enrichment with prejudgment interest, to effect the 

remedial purposes of the federal securities laws. 

IV. 

An order pursuant to Section 20(d) ofthe Securities Act [15 U.S.C. §77t(d)] 

and Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)] imposing civil 

penalties against Defendants. 

V. 

Such other and further relief as this Court may deem just, equitable, and 

_____________ -B.ppropriatein-connection-with-the-enfru:cemen.~l__8€G_uFiti~_er'-----­

the protection of investors. 

20Dated: May 8, 2012 

Respectfully submitted, 

~~l~ 

M. Graham Loomis 
Regional Trial Counsel 
Georgia Bar No. 457868 
Email: [email protected] 

Kristin B. Wilhelm 
Senior Trial Counsel 
Georgia Bar No. 759054 
Email: [email protected] 

COUNSEL FOR PLAINTIFF 
Securities and Exchange 
Commission 
950 East Paces Ferry Road, N.E. 
Suite 900 
Atlanta, Georgia 30326-1382 
Tel: (404) 842-7600 
Fax: (404) 842-7666 

21 


mailto:[email protected]
mailto:[email protected]