Federal Judge Travis McDonough ruled Wednesday that two Chattanooga men who were charged by the Securities and Exchange Commission with defrauding a large number of investors can obtain loans from friends and family to pay attorneys and for living expenses.
However, he said details of the loans must be spelled out in affidavits that he and the SEC must approve. The loans to Doug Dyer and James Brennan will be without any collateral and must be from someone who has not received gifts from them and was not an investor.
Attorneys for Dyer and Brennan said the pair had all their assets frozen, leaving them with no funds.
Atlanta attorney Frank Lightmas said, "These people have a right to eat. They have a right to pay bills."
He charged that the SEC "wants to publicly embarrass the defendants. This is about pounding people."
Judge McDonough said, "The SEC does have an interest in protecting victims. It's not just about embarrassing people."
The SEC announced in late July that it had won a court-ordered asset freeze to halt "an ongoing fraud by two former Chattanooga brokers with disciplinary histories who allegedly raised more than $5 million from investors without using the money as promised."
The SEC said Dyer and Brennan sold purported shares in eight similarly named companies to more than 240 investors nationwide since 2008 without ever registering the stock as they promised. Instead, according to the SEC’s complaint, Brennan and Dyer transferred investor funds into their personal accounts or those belonging to their wives. Attorneys now say there were 258 investors.
The action says over a five-year period that Carole Johnston Brennan received $30,000 of the funds and Alison Ford Dyer received $286,000.
SEC attorney Robert Schroeder said following publicity about the case that his office "was inundated" with people with complaints about the pair. He said some went back to 2003.
He said some complainants alleged that the pair sought individuals to send $7,500 and a video and they "could help them become stars."
Attorney Lightmas acknowledged there are not enough assets to cover the millions investors are owed.
He said the SEC had been sent "tons" of financial data, but the SEC said it has not been told who sent what amount of money to Dyer and Brennan and where the money went.
Attorney Schroeder said it appeared that money went into bank accounts, then was quickly dispersed out of the accounts.
Attorney Jerry Summers said the spouses of Dyer and Brennan "are housewives" who were not involved in any schemes. "They don't need to be in this lawsuit," he said.
He said it is not a case "where widows lost money. These were sophisticated investors." He said one of the city's leading investment officials (Cartter Patten) was on the front row for the hearing. Several others who got no return on their investments were also in the courtroom at the Federal Building.