DENVER and WASHINGTON (11/13/12)--The Securities and Exchange Commission (SEC) has filed a legal complaint against a company the regulator claims has offered fraudulent and unregistered "purported certificates of deposits (CDs)" under the name Her Majesty's CU (HMCU).
The complaint was filed Nov. 8 in the U.S. District Court for the District of Colorado. The SEC names as defendants Stanley B. McDuffie (formerly known as Stanley Roberson and Stanley Battle) and Jilapuhn, Inc. (doing business as Her Majesty's CU and HMCU).
Her Majesty's CU is based in the Virgin Islands with an office in Colorado and has stirred up concerns among credit union organizations and regulators for years.
The National Credit Union Administration (NCUA) in June 2011 prohibited Stan Roberson from future work at any federally insured financial institution. Roberson was the former CEO of the HMCU and, the NCUA prohibition said, was convicted of contempt of court and sentenced to 180 days in jail. Roberson was sentenced to one year in jail for contempt of court and failing to produce documents for a securities investigation by the Colorado Division of Financial Services.
The SEC, in its newly filed lawsuit, charges that from 2008 through September 2012 McDuffie (aka Roberson) and HMCU used the HMCU website to "lure investors" by offering CDs with above-market rates. The SEC also alleges Duffie used the site to make misleading statements and omissions to portray HMCU as a "genuine, secure credit union that was regulated and that held insurance covering investor deposits."
The SEC's lawsuit points out that, in reality, HMCU has never been a federally or state-chartered credit union, has never been regulated as a credit union by any government authority, has never held insurance covering its investor deposits, and has never been insured by Lloyd's of London as it has claimed.
Instead, HMCU is the trade name of a for-profit corporation that is controlled by McDuffie. Rather than loaning or investing CD deposits, as would be the case with a legitimate credit union, McDuffie and HMCU deposited investor funds into financial institution accounts held by HMCU, and then allegedly misappropriated the funds for personal and business expenses, causing investors to lose most of their principal, and rendering it impossible for HMCU to make required interest payments.
Michael McLain, CUNA's assistant general counsel and senior compliance counsel, stated, "CD deposits from legitimate credit unions would not be considered securities because they are issued by federally regulated financial institutions which are subject to comprehensive regulations and the CDs are protected by federal or other deposit insurance."
The SEC suit seeks to "restrain and enjoin" the defendants from such alleged violations as:
* Offering and selling unregistered securities, obtaining money or property on the basis of misleading statements and omission, and making misleading statements and omissions; and
* Engaging in schemes to defraud and violating sections of the Securities Act.
The SEC asks the court for relief in the form of a finding that the defendants committed the violations and that unless restrained will continue to do so; enter and injunction permanently restraining and enjoining the defendants from violating the laws as alleged against them in the SEC complaint, order defendants to "disgorge" any and all illegal gains and pay civil money penalties, as well as any other relief the court my deem appropriate.
Regulators have investigated the credit union in an attempt to determine whether it is legitimate or a fraud. However, as former NCUA Director of Public and Congressional Affairs John McKechnie explained to News Now at the time of an earlier agency investigation, "This is a Virgin Island-licensed, uninsured entity. They call themselves a 'credit union' and Virgin Island authorities are apparently unable to do anything about this. They aren't advertising as federally insured and [make] no references to NCUA so we have no authority."
The credit union is not chartered by the Colorado Division of Financial Services nor the NCUA.