Two Jackson Men Charged in Multi-Million Dollar Fraud Scheme Conspiracy

We recently wrote about two interesting SEC enforcement actions that examine the question of whether the individuals and entities that purchase convertible promissory notes from public companies are “dealers” according to the definition established in Section 15(a)(1) of the Securities and Exchange Act of 1934 (“Exchange Act”). Informally known as “toxic lenders” or “dilution funders” because the terms of their financing agreements contain provisions that almost always result in harm to investors and issuers alike, they’re considered by many to be the scourge of the penny stock market. Typically, the notes they buy can be converted at any time, often at a discount to market price of 70 percent or more. As the lender converts and sells, stock price drops. To avoid making insider filings to the SEC, the lender's financing agreements specify that he may own no more than 4.99 percent of the company’s stock at any time. But that in no way stops him from converting his note continuously, in a succession of tranches. Since the conversion ratio is pegged to the security’s recent average bid price, every time he converts, he gets more stock than the time before. As he sells tranche after tranche, the company’s stock price enters freefall. Sometimes the only remedy for the issuer is a large reverse split.

On May 20, 2021, Ted Brent Alexander, 55, and Jon Darrell Seawright, 49, both of Jackson, Mississippi, were indicted by a federal grand jury for their roles in a large multi-million dollar Ponzi scheme that adversely affected hundreds of victims across multiple states over about eight years.

The case is currently scheduled to go to trial on July 6, 2021, before United States District Judge Carlton W. Reeves in Jackson.

Both Alexander, a prominent lobbyist for Baker Donelson, and Seawright, a law partner at Baker Donelson, are charged with one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; and four counts of wire fraud involving a scheme to defraud investors, all in connection with a Ponzi scheme promising guaranteed returns to investors who thought they were lending money to a ‘broker” enterprise purchasing timber that was then marketed to multiple lumber mills.

According to the indictment, from January 2011 through December 2018, Alexander and Seawright misled their investors to believe that Alexander and Seawright were the principal actors in the venture while downplaying and concealing from investors the true fact that the “broker” was Madison Timber Properties, LLC, a company wholly owned by Arthur Lamar Adams, and there were no real contracts for timber and lumber mills.  Adams was previously convicted and sentenced to almost 20 years in prison on October 30, 2018, for his role in the largest Ponzi scheme in Mississippi history.  According to the details of the case, Adams fraudulently obtained in excess of $164.5 million dollars from more than 320 investors located in at least 14 different states.

In addition, the indictment alleges that Alexander and Seawright represented to their investors that the two men would inspect each property underlying each investment,  and they would verify that supposed lumber mill agreements were in existence and valid.  Alexander and Seawright failed to do any of those things.  Throughout the fraud scheme, Alexander and Seawright persuaded their investors to maintain their investments and to invest additional funds by asserting that Alexander and Seawright had their own personal funds invested in the venture.

Alexander and Seawright represented to their investors that the investors would be first repaid all of their principal and interest before  Alexander and Seawright would receive fees, and therefore Alexander and Seawright would only earn money from each investment if they performed as promised to their investors.  In fact, in addition to receiving a percentage of return on the investors’ funds, Alexander and Seawright also received payments from the broker for recruiting investors into the scheme.  Alexander and Seawright did not disclose to the investors (a) that they were receiving those payments, or (b) the amount of the payments, or (c) that Alexander and Seawright were getting paid before any payment was made to the investors.

The indictment alleges that, during the course of their scheme and artifice to defraud, Alexander and Seawright solicited over twenty million dollars ($20,000,000) from more than fifty (50) investors.

Following the 2018 criminal prosecution of Arthur Lamar Adams, the United States District Court appointed a receiver who is actively seeking to recover and maximize assets for restitution to investor victims. Information regarding the Receiver’s activities can be found at the receiver’s website, madisontimberreceiver.com.

The case is being investigated by the Federal Bureau of Investigation and the Securities and Exchange Commission.  The criminal case is being prosecuted by Assistant United States Attorney Theodore Cooperstein.

Seawright was dinged with a second Indictment on May 20, 2021, for a bankruptcy fraud scheme. 

According to the indictment, on January 18, 2019, at 3:30 p.m., Seawright signed and emailed to an insurance agent a completed Insurance Proposal stating that “there are no pending or anticipated bankruptcy, receivership or insolvency proceedings involving” the insured company Alexander Seawright Transportation LLC, and “there are no known or anticipated circumstances which will impair” Alexander Seawright Transportation LLC’s “ability to fulfill its obligations under” its insurance contract.  In fact, as Seawright well knew, a Petition for Bankruptcy had already been filed on that date, January 18, 2019, at 11:13 a.m.

The indictment further alleges that the fraud consisted of deceiving the insurers and financers into committing to the insurance policies, which, after the bankruptcy court filing, they would be barred by the bankruptcy laws from canceling or recovering payment from Seawright and his company.  The business of Alexander Seawright Transportation LLC centered on trucking, and Alexander Seawright Transportation LLC could not stay in business and make money without insurance for its cargos and insurance for its trucks.  Without property damage insurance coverage, Alexander Seawright Transportation LLC would be unable to operate its tractors and trailers in interstate commerce.

 


For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855