Judah and Excel Lease Fund Settle $40M Debenture Offering Suit in TX District Court

Holding:

Without admitting or denying the Securities and Exchange Commission’s (“SEC”) allegations, Texas businessman Benny L. Judah and his company, Excel Lease Fund, Inc. have consented to the asset-freeze and receivership orders, as well as permanent injunctions against future violations of anti-fraud provisions of federal securities laws, particularly the Securities Act of 1933 and the Securities Exchange Act of 1934. Judah has also consented to an injunction issued by the U.S. District Court for the Northern District of Texas prohibiting him or any entity he owns or controls from issuing securities in the future. The SEC had alleged that from January 2006 through at least March 2009, the Defendants engaged in a fraudulent offering of debenture securities issued by Excel. In offering materials, defendants represented that Excel sought to raise $50 million to fund Excel's equipment-leasing business, to fund Excel's "investments," and to retire debentures that Excel had issued earlier. In practice, however, Judah used offering proceeds in a manner grossly inconsistent with those representations.

Detailed Summary:

Based on the SEC’s complaint, Judah was a resident of Lubbock, Texas, and the president and sole owner of Excel. Judah is not registered with the SEC in any capacity. Judah is a recidivist securities-law violator, the district court having imposed an injunction against him in 2001 for violations of the securities-registration and anti-fraud provisions of the federal securities laws, specifically Sections 5(a), 5(c), andI7(a) of the Securities Act [15 U.S.C. §§77e(a), 77e(c), and 77q(a)] and Section 10(b) ofthe Exchange Act [15 U.S.C. § 78j(b)] and of Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder. Complaint, paragraph 7, citing SEC v. Benny L. Judah and Excel Lease Fund, Inc., Civil Action No. 5:01-CV-045 (N.D. Tex., January 2001). In that case, the district court ordered Judah to pay a $50,000 civil penalty.

The SEC also alleged that Excel is a Texas corporation headquartered in Lubbock, Texas. It was the issuer of the debentures. Excel has never registered any securities offerings with the Commission. According to the SEC, as of April 20, 2009, Excel had debentures issued and outstanding with a face value of approximately $40 million held by approximately 240 investors, primarily located in the Lubbock area. Excel is likewise a recidivist securities-law violator, the district court having imposed an injunction against it in 2001 for violations of the securities-registration and anti-fraud provisions of the federal securities laws, specifically Sections 5(a), 5(c), andI7(a) of the Securities Act [15 U.S.C. §§77e(a), 77e(c), and 77q(a)] and Section lOeb) ofthe Exchange Act [15 U.S.c. § 78j(b)] and of Rule 10b-5 [17 C.F.R. § 240.lOb-5] thereunder. Complaint, paragraph 8, citing SEC v. Benny L. Judah and Excel Lease Fund, Inc., Civil Action No. 5:01-CV-045 (N.D. Tex., January 2001).

The SEC further alleged that Judah and Excel raised approximately $40 million from hundreds of investors through a high-yield debenture offering that started in January 2006. The Commission also alleged that Judah and Excel made several false and misleading representations and omissions in connection with the offer and sale of the debentures.

Among other things, the SEC claimed that Judah and Excel represented to investors that investor funds would be used to retire an earlier series of debentures and for certain other legitimate business purposes. In fact, however, Judah used millions in investor proceeds to fund his securities day-trading habit and to make loans to other companies he owned. These unauthorized and undisclosed misuses of funds resulted in losses of millions of dollars. In addition, Judah and Excel failed to disclose material related party transfers to other companies Judah owned and overstated the assets supposedly backing the debentures by at least 30%.

The complaint alleged that Judah and Excel violated the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint requested permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against defendants.

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