SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

LITIGATION RELEASE NO. 17281 / December 19, 2001

SECURITIES AND EXCHANGE COMMISSION v. LYTLE E. FOGELSONG, THOMAS GREGORY COOK, JAMES H. MALBAFF, and MALBAFF & COOK, No. 5:01CV00104 (Wilson, C.J.) (U.S.D.C., W.D. Va.)

COMMISSION FILES "PRIME BANK" SECURITIES
FRAUD CASE AGAINST VIRGINIA DEFENDANTS

On December 19, 2001, the Commission filed a securities fraud case in the United States District Court for the Western District of Virginia charging four defendants from Virginia with promoting fraudulent "prime bank" investment schemes. The defendants are Lytle E. Fogelsong of Winchester, Virginia; Thomas Gregory Cook of Haymarket, Virginia; James H. Malbaff of Haymarket, Virginia; and Malbaff & Cook, a Virginia partnership.

The Commission's complaint alleges that the defendants collectively raised in excess of $1.1 million from more than 30 investors by promoting several fraudulent investments that featured purported "high-yield" trading programs. According to the complaint, the programs were represented to generate returns of as much as 13,000% from the trading of bank debentures, medium terms notes, and other instruments resembling the fictitious "prime bank" securities that have been the subject of dozens of Commission enforcement actions over the past decade. The Commission charges that defendant Fogelsong skimmed at least $70,000 of the investors' funds for his own personal use, and that most of the remaining investor funds were misappropriated by the remote operators of the fraudulent programs in Utah and California. The Commission further alleges that in soliciting investors, Fogelsong, Malbaff, and Cook each made numerous material misrepresentations concerning, among other things, the views of the SEC, the Federal Reserve, and other agencies regarding these investment programs; their own due diligence; the safety of the programs; and the use of investor funds. According to the complaint, even after they learned that their investors' funds had been misappropriated by remote operators of the programs, the defendants joined together to lull their investors into inaction rather than disclosing the truth to them.

The Commission's complaint charges each of the defendants with securities fraud in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rule 10b-5, and charges Fogelsong, Cook, and Malbaff with acting as unregistered brokers in violation of Exchange Act Section 15(a). The Commission is seeking injunctions, disgorgement of ill-gotten gains (with interest), and civil penalties against all defendants.

In a related matter, the United States Attorney's Office for the Western District of Virginia announced the indictment and arrest of Fogelsong on 25 criminal counts including securities fraud, wire fraud, mail fraud, money laundering, and obstruction of justice in connection with his role in the same investment schemes. United States v. Lytle E. Fogelsong, No. 1:01CR00076 (W.D. Va.).

The Commission wishes to thank the United States Attorney's Office for the Western District of Virginia, the Federal Bureau of Investigation, and the Virginia State Corporation Commission for their assistance in connection with this matter.

The Commission's investigation is continuing.

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This case is part of the SEC's continuing effort to combat prime bank fraud and to alert the public to the risks posed by these phony instruments. The risks of this type of fraud and warnings about how to avoid it are spelled out in the Interagency Advisory: Warning Concerning "Prime Bank" Notes, Guarantees, and Letters of Credit and Similar Financial Instruments (October 21, 1993), and other information which is available through the SEC's Homepage at http://www.sec.gov/divisions/enforce/primebank.shtml.

SEC Complaint in this matter.