SEC, FBI Shut Down Illegal Internet Funds
June 25, 2001
The Securities and Exchange Commission has shut down two illegally run mutual funds and the FBI seized records and data from the Linville Group, the company that ran the funds, according to a SEC official.
The SEC filed a complaint in U.S. District Court for the Western District of North Carolina and obtained a temporary restraining order against the Linville Group and James and Clifford Burton, the brothers who ran the two funds. The Burton brothers falsely promoted the Linville Group and its funds on its Web site, the SEC's complaint alleges. The Web site claimed the group was a "fully licensed institution," when, in fact, it is not licensed or registered. The brothers are accused of violating the antifraud and securities registration provisions of federal securities laws.
Judge Graham Mullen issued the order June 14, freezing the assets held in the Linville Long-Term Growth Fund and the Linville Short-Term Fund. The amount of assets each fund holds has not been determined, said Richard Simpson, assistant chief litigation counsel with the SEC.
The SEC's division of enforcement discovered the Web site some months ago and was monitoring the site up until June 14, when the FBI exercised a search warrant and the court order shut down the company, Simpson said. No criminal charges have been filed, he said.
The SEC has asked the court to fine the brothers and order them to disgorge any profits and proceeds of the funds. A hearing has been scheduled June 25 to determine whether a preliminary injunction should be issued and if a trustee should be placed in control of the assets.
The Burton brothers promoted the funds on a Web site, www.linvillegroup.com, claiming the funds' goal was designed "to improve the quality of life for the little guy." The Web site promised "top-notch money management for those people who traditionally cannot afford it."
As recently as June 8th, the group's Web site claimed the year-to-date return for the Linville Long-Term Growth and the Short-Term Growth Funds were 136% and 211%, respectively. The site had also claimed both funds had returned a combined 2,538% for the year ended Dec. 31, 1999. Earlier this month the site announced that the Linville Group had purchased the brokerage firm, IC Financial, however no such brokerage firm exists, according to the SEC.
As of June 21, the Linville Web site had been shut down and a message on the Group's answering machine informed callers that, "We deeply regret that due to circumstances outside of our control we have been forced to cease all operations. We understand that this is an inconvenience and wish we could do more but at this point we are just sitting and waiting and would appreciate your understanding and patience."