SEC Shuts Down Orange County, California, Penny Stock Boiler Room Operation

On August 4, 2010, the Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court, Central District of California, alleging that Kensington Resources, Inc. through its principals, Joseph R. Porche and Larry R. Crowder and sales agents, Konrad C. Kafarski, Carlton L. Williams, Gary K. Juncker and Dale J. Engelhardt raised over $11 million from approximately 200 investors nationwide from 2008 to 2009 in a fraudulent offering of unregistered shares of American Environmental Energy, Inc. (AEEI) stock. AEEI is purportedly engaged in the green energy business. Kensington touted the AEEI investment opportunity through its website and through cold calls to potential investors.

The SEC alleged that, when selling shares of AEEI, Kensington’s sales staff repeatedly made misrepresentations concerning the payment of sales commissions and the use of proceeds. The written Private Placement Memorandum (PPM) specifies that of the funds raised, a maximum of 10% would be used to pay commissions, 80% would be used by AEEI for acquisition, configuration and operation of fuel and energy production facilities, and 10% would be used for AEEI’s working capital and offering expenses, such as legal and accounting fees, printing costs, and transfer agent fees.

According to the SEC, rather than use 80% of the funds raised to acquire and run fuel and energy facilities, Kensington used nearly all o f the money to fund the lavish lifestyles of Porche and Crowder, to pay 25% in commissions to Kensington’s sales agents, and to pay for Kensington’s overhead.

The SEC claimed that Porche and Crowder misappropriated investor funds by paying their expenses with investor money and transferring investor money to their personal accounts and accounts they controlled. Specifically, Porche took over $1.34 million and Crowder took over $644,000 from investor funds. Additionally, they misappropriated over $3.48 million of investor funds to pay for personal expenses (including entertainment, restaurant, home and personal furnishings, and travel), luxury vehicles, Crowder’s wedding in Italy, Kensington’s overhead, attorney expenses, and to pay a company that apparently used investor funds to promote AEEI stock.

The SEC has sued Crowder and Kafarski for violating the antifraud provision of the federal securities laws; and sued all of the named defendants for violating the securities registration and broker-dealer registration provisions of the federal securities laws. The SEC is seeking permanent injunctions, disgorgement of the defendants’ ill-gotten gains, civil penalties, and penny stock bars to prohibit similar violations in the future.

“Based upon the SEC’s complaint, there were tell-tale signs that Kensington was running a fraudulent operation. Investors who understand due diligence would not have been taken by these unscrupulous fraudsters. Sadly, it is unlikely that these investors will have their hard earned money returned to them. That’s exactly why Wittenberg Law has designed a program to assist average investors to avoid scams like these,” stated Jeffrey Wittenberg.

Contact Jeffrey Wittenberg, Esq., at 877-352-2010 if you would like to discuss this case, any other securities or investment related issue, or to learn about Wittenberg Law’s investor protection program and investment scam prevention guarantee.