The US Attorney's Office for the Northern District of Ohio has filed criminal charges against Edward A Allen and David L Olson, residents of Lakeland, Florida, accusing them of securities fraud, mail fraud, wire fraud, and conspiracy for their roles in a USD14 million real estate investment fraud.

The criminal case includes many of the same allegations in a civil injunctive action previously filed by the Commission on May 20, 2010 in the United States District Court in Cleveland, Ohio against Allen, Olson, and A&O Investments, LLC (A&O).

According to the Commission's complaint, from approximately September 2005 through December 2008, Allen and Olson raised approximately USD14.8 million from at least 100 investors through the offer and sale of promissory notes issued by A&O. The complaint alleges that Allen and Olson recruited promissory note investors from customers of Georgia-based registered broker-dealer World Group Securities, Inc, for which Allen and Olson were registered representatives, and through other means. The complaint alleges that Allen and Olson told investors that they would use the investors' money to purchase, rehabilitate, and sell real estate.

The complaint alleges that Allen and Olson's representations about their use of offering proceeds, the collateral securing the investments, and the success of the investments were all false. According to the complaint, in reality Allen and Olson operated a Ponzi scheme by using approximately USD4.4 million of investors' funds to pay "interest" and, in some cases, principal to previous investors and spent only USD5.1 million of the USD14.8 million raised to purchase and rehabilitate real estate. The complaint further alleges that Allen and Olson used USD2.2 million to pay personal expenses for themselves and their family members.

According to the complaint, Allen and Olson also misrepresented and omitted to state material facts regarding the collateral securing the notes, in that as much as approximately USD5.5 million worth of A&O promissory notes purportedly were secured by the same piece of property in Lakeland, Florida. This property's value was grossly inadequate to secure the notes. The complaint charges Allen, Olson, and A&O with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.

On November 9, 2010, the Commission obtained a judgment against Defendants Olson and A&O, which includes permanent injunctions against future violations of the securities laws and orders them to pay disgorgement of USD10,339,849, representing ill-gotten gains, and prejudgment interest of USD736,631. On June 6, 2011, an administrative law judge issued an order pursuant to Section 15(b)(6) of the Exchange Act barring Olson from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of penny stock. The Commission's case against Allen is still pending.