Vedder Thinking | Articles SEC Enters into Deferred Prosecution Agreement with Amish Helping Fund
The Securities and Exchange Commission (SEC) recently entered into a Deferred Prosecution Agreement (DPA) with the Amish Helping Fund (the AHF or the Fund), an Ohio non-profit, religious-based corporation that sold securities to fund mortgage and construction loans for Amish families. The SEC’s investigation into the AHF started in June 2010, and the SEC’s DPA with the AHF was only its second DPA since the Enforcement Division announced its Cooperative Initiative in January 2010.
The AHF had been formed in 1995 by a group of Amish elders in order to raise funds to make loans to Amish families. From 1995 to June 2010, the AHF had 3,500 investors in the Amish community. The Fund currently has more than 1,200 borrowers and around $125 million in mortgage receivables.
The SEC alleged that the AHF’s offering memorandum, which was drafted in 1995, had not been updated for 15 years, and accordingly, it contained material misrepresentations about the Fund and the securities being offered by the Fund. Specifically, the AHF’s offering memorandum failed to contain updated information concerning the history of operations of the Fund, the Fund’s cash reserves, the use of investor monies, and investors’ ability to redeem money. Based on the AHF’s failure to revise its offering memorandum since 1995, the SEC contended that the Fund violated Section 17(a) of the Securities Act of 1934, along with Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Notably, no investor suffered any realized losses in connection with the AHF’s stale offering memorandum.
Upon being informed of its possible securities violations, the AHF immediately cooperated with the SEC by revising the Fund’s offering memorandum and by quickly taking other remedial steps. For example, the AHF provided existing investors with corrected copies of the offering memorandum, offered existing investors the right of rescission, retained an independent certified public accountant to perform ongoing audits, registered its securities offerings with the Ohio Division of Securities, and consented to a cease-and-desist order with the Ohio Division of Securities.
Under the terms of the AHF’s DPA with the SEC, the prosecution of any related action against the Fund is delayed for two years, through July 17, 2014.1 Provided that the AHF complies with the terms of the DPA, the SEC has agreed that it will not file any further enforcement actions stemming from the Fund’s current alleged securities violations. Further, per the DPA, the AHF accepted responsibility for the violations alleged by the SEC and agreed to other remedial conduct, including cooperating with the SEC’s investigation by supplying non-privileged documents and any other requested information.
While the SEC’s use of DPAs remains infrequent, the DPA with the AHF highlights the benefits of cooperating with the SEC during investigations. Moreover, the underlying alleged securities violations at issue with the AHF underscore the need for companies to regularly review and update their offering memoranda.
1 A copy of the AHF’s DPA with the SEC is available on the SEC’s website at: http://www.sec.gov/news/press/2012/2012-138-dpa.pdf.
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