UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF

Plaintiff, United States Securities and Exchange Commission ("Commission"), alleges and states as follows:

NATURE OF THE COMPLAINT

1. From at least 1999 through the present, Gary L. McNaughton ("McNaughton") has raised at least $20 million from approximately 150 investors through an unregistered offering and selling of securities in the form of notes that McNaughton issues under the name of The Haven Equity Company ("Haven Equity"). McNaughton and most of the investors reside in and around Lorain County, Ohio and belong to the same church where McNaughton is a youth assistant.

2. In selling these notes, McNaughton has fraudulently guaranteed a return on the investment as well as the principal. McNaughton has guaranteed extraordinary annual returns of 15% to 20% to investors and told investors that they will receive their returns in the form of monthly interest payments. McNaughton tells investors that he will send their money to his wealthy childhood friend, Andrew K. Lech ("Lech"), a resident of Ontario, Canada, who is supposed to use his expertise in options trading to generate the guaranteed returns.

3. McNaughton's guarantee of returns is a fraud because beginning in March 2003, investors have not received their monthly interest payments. McNaughton was reckless in guaranteeing investors' returns and principal because he lacks the financial resources to fulfill the guarantee.

4. Further, McNaughton has no reasonable basis to believe that Lech will generate returns sufficient for McNaughton to make good on his guarantee because he has no details of what Lech does with investor money or of Lech's supposed securities trading.

5. As investors stopped receiving their payments, McNaughton resorted to raising additional investor funds and, contrary to the representations he made, never sending these funds to Lech. Instead, McNaughton used funds from the bank accounts into which he deposited these investors' funds to continue paying other investors their monthly interest.

6. In McNaughton's attempt to perpetuate the Haven Equity scheme, Lech, with the assistance of McNaughton, is offering his own notes ("Lech notes") to Haven Equity investors, the terms of which are virtually identical to the Haven Equity notes. However, investors who executed Lech notes have never received their guaranteed returns.

7. Accordingly, the Commission seeks (a) a temporary restraining order and preliminary and permanent relief enjoining defendants from future violations of the federal securities laws, (b) an asset freeze to avoid dissipation of assets pending the resolution of this action, (c) an accounting, (d) expedited discovery, (e) repatriation of assets, (f) disgorgement of all ill-gotten gains, (g) civil penalties, and for such other ancillary and equitable relief as is sought herein and may be appropriate.

DEFENDANTS

8. Gary L. McNaughton, d/b/a The Haven Equity Company, is 48 years old and lives in Elyria, Ohio. McNaughton offers and sells securities in the form of notes he issues under the name of Haven Equity. Haven Equity does not have a business purpose; it is only the name McNaughton has given to his offering of securities. McNaughton is a member and youth assistant for the Church of the Open Door in Elyria, Ohio where many of the investors are also members.

9. Andrew K. Lech is 42 years old and lives in Peterborough, Ontario. Investors are told that Lech is McNaughton's childhood friend and a "successful securities trader." Investor funds raised from the sale of Haven Equity notes are sent to Lech. McNaughton tells investors that Lech generates the guaranteed returns by using their funds to trade stock options. In or about March 2003, in an attempt to reconstitute the Haven Equity scheme, Lech began issuing his own securities and soliciting in the United States Haven Equity investors to invest with him directly. In March 2003, the Ontario Securities Commission froze assets in certain Canadian accounts owned by Lech and one owned by McNaughton. The Canadian freeze, however, covers only $902,000 (Canadian) and $160,000 (U.S.), a figure dwarfed by the $20 million raised through the offer and sale of the notes.

JURISDICTION

10. The Commission brings this action pursuant to the authority conferred on it by Section 20(b) of the Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77t(b)] and Sections 21(d) and (e) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78u(d) and 78u(e)].

11. The Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. §78aa] and 28 U.S.C. §1331. Venue is proper in this Court pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. §78aa].

12. The acts, transactions, practices, and courses of business constituting the violations alleged herein occurred within the jurisdiction of the United States District Court for the Northern District of Ohio and elsewhere.

13. Defendants, directly and indirectly, have made, and are making, use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business alleged herein.

FACTS

The Haven Equity Offering

14. From at least 1999 through the present, McNaughton has raised at least $20 million from at least 150 investors.

15. McNaughton has raised funds from investors by offering and selling unregistered securities in the form of notes that he issued under the name Haven Equity ("Haven Equity notes").

16. McNaughton offers and sells the Haven Equity notes primarily to Lorain County, Ohio residents. Many of the investors are members of the Church of the Open Door where McNaughton is a youth assistant.

17. McNaughton has also offered and sold notes to residents of Florida.

18. In order to fund their investment, investors have refinanced their homes and have withdrawn substantial retirement savings.

19. Upon purchasing a Haven Equity note, investors are provided with a one-page Haven Equity note. Investors receive no other written information regarding their investment. The Haven Equity notes do not state any risk associated with Haven Equity or financial information about McNaughton or Haven Equity.

20. After receiving investor funds, McNaughton pools the funds in bank accounts that he controls ("Haven Equity bank accounts"). McNaughton then sends funds from these accounts to Lech and in turn, Lech then sends funds back to Haven Equity bank accounts.

21. Until about February of 2003, McNaughton used funds from the Haven Equity bank accounts to make equal, monthly interest payments to investors.

22. McNaughton also uses funds from the Haven Equity bank accounts into which investor funds are deposited to pay certain personal expenses such as luxury automobiles, a boat, motor home and credit card purchases.

23. None of the investors have ever received a written statement reflecting the location of their money, the returns their investment has earned or how the returns were generated.

24. Prior to investors investing, McNaughton does not ask them to provide any personal financial or investment experience information.

25. No registration statement has been filed or is in effect with the Commission in connection with the securities offered by McNaughton and Haven Equity.

Representations about the Haven Equity Notes

26. McNaughton tells investors that their Haven Equity investment will earn a guaranteed 15% annual interest rate but investors who are church pastors are told they will earn a guaranteed 20% annual interest rate.

27. McNaughton has also told investors that for a limited time Haven Equity is offering higher interest rates of 40% for six months. He also told one investor that he would earn a guaranteed 10% return over three months on a $50,000 investment.

28. McNaughton also tells investors that their principal investment is guaranteed by Haven Equity.

29. McNaughton states to investors that Lech will use their funds to purchase blue chip stocks and trade options on those stocks. McNaughton also tells investors that Lech's trading of options will generate the return that McNaughton guaranteed. McNaughton told an investor that the return on his investment was guaranteed because whether the value of the stocks owned by Lech went up or down, Lech's options trading strategy will generate a return.

Guaranteed Payments Have Stopped

30. Beginning in March 2003, investors stopped receiving their monthly interest payments.

31. McNaughton had no reasonable basis for guaranteeing investors a 15% to 20% annual return on their principal investment because he lacked the resources to fulfill such guarantees, played no role in generating the returns payable to investors each month, he directed investor funds to foreign accounts controlled by a foreign citizen, and merely relied on Lech's representations to him about what was done with investor funds.

32. McNaughton had no reasonable basis to believe the representations Lech made to him. McNaughton never received any documents confirming if and how investor funds were being invested. He also never received any documents showing that Lech actually generated sufficient returns with which he could distribute the monthly interest payments he guaranteed to investors. McNaughton had the opportunity to review brokerage statements he saw on Lech's desk but he did not look at them.

33. Despite this lack of knowledge, McNaughton continued to raise funds from new investors by telling them that they would earn, in the form of monthly payments, a guaranteed 15% to 20% annual return.

34. When given the opportunity to explain in testimony before the Commission staff how he was able to guarantee an annual return of 15% to 20% to investors, and what he did to determine if Lech actually used investor funds to trade in stock options McNaughton asserted his Fifth Amendment right against self-incrimination.

The Purported "Unwinding" of Haven Equity and The Continued Offering Under Lech

35. Shortly after the Commission launched an examination in January 2003 of an Ohio broker-dealer where two customers hold Haven Equity notes in their retirement accounts, McNaughton tried to convince investors to "transfer" their investment to Lech in a new offering, made efforts to reassure investors that they would receive their interest payments and misrepresented to investors the reasons payments had stopped.

Lech's New Offering

36. McNaughton informed investors in February 2003 that he was "unwinding" Haven Equity. In doing so, McNaughton told investors that they had two choices: "transfer" their investment to Lech who will issue his own note ("Lech note"), the terms of which were virtually identical to the original Haven Equity notes, except that the guarantor was now Lech. McNaughton also gave investors the option of waiting four months for a complete refund of principal from Haven Equity.

37. McNaughton assisted Lech in the offer of the Lech notes. McNaughton prepared the notes, signed the notes as a witness and distributed them to investors. McNaughton told investors that they would receive their monthly interest payments directly from Lech. In or about April 2003, McNaughton arranged and hosted a meeting of Haven Equity investors attended by Lech where Lech personally offered Lech notes for sale to the investors.

38. Investors who transferred their investment or purchased Lech notes have not received any interest payments.

39. Investors who demanded their principal back from Haven Equity have not received such a refund.

40. No registration statement has been filed or is in effect with the Commission in connection with the offering of securities by Lech.

McNaughton's Efforts to Lull Investors

41. McNaughton stopped making payments to Haven Equity investors in March 2003. In or about March and April 2003, McNaughton told investors that the missed monthly payments were due to delays in transferring funds from Canada to the United States as a result of "new regulations" imposed after the September 11, 2001 terrorist attacks.

42. In addition, in the later part of April 2003, after investors learned that the OSC had ordered Lech to cease making securities transactions, McNaughton then told investors that their funds were safe because the OSC's order against Lech to stop trading did not apply to Lech's ongoing trading of stock options in the United States. Contrary to McNaughton's representation, the OSC cease-trade order is not limited to trading in options in Canada.

43. After the initiation of the OSC and Commission investigations, McNaughton has told at least one investor that once he resolves regulatory problems, he will "re-group by offering notes that offer a lower interest rate.

Misrepresentations to Investors about the Use of Funds

44. Shortly after telling some investors in February 2003 that he was "unwinding" Haven Equity, McNaughton raised at least $265,000 from four investors.

45. McNaughton offered and sold notes to these investors by representing to them, as he did to previous investors, that their principal investment will be sent to Lech and that Lech's options trading strategy will generate the high rates of return that McNaughton guaranteed to them.

46. These investors sent their funds to McNaughton who deposited their funds into a Haven Equity bank account. However, contrary to his representations, McNaughton never sent these investors' funds to Lech. Instead, McNaughton used funds from the bank accounts into which he deposited these investors' funds to continue paying other investors their monthly interest.

47. When given the opportunity in testimony before the Commission staff to state whether he was using new investors' funds to pay interest to other investors, McNaughton asserted his Fifth Amendment right against self-incrimination.

COUNT I
Violations of Section 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)]
(Against Defendants McNaughton and Lech)

49. Paragraphs 1 through 47 above are realleged and incorporated herein by reference.

50. By their conduct, McNaughton and Lech, directly and indirectly, and notwithstanding that there was no applicable exemption: (i) made use of means or instruments of transportation or communication in interstate commerce or of the mails to sell, through the use or medium of a prospectus or otherwise, securities as to which no registration statement was in effect; (ii) for the purpose of sale or delivery after sale, carried and/or caused to be carried through the mails or in interstate commerce, by means or instruments of transportation, securities as to which no registration statement was in effect; and (iii) made use of means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell, through the use or medium of a prospectus or otherwise, securities as to which no registration statement had been filed.

51. No valid registration statement was filed with the Commission in connection with McNaughton's and Lech's sales of, and offers to sell, Haven Equity notes and Lech notes.

52. By reason of the foregoing, McNaughton and Lech have violated and are violating Sections 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)].

COUNT II
Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]
(Against Defendant McNaughton)

53. Paragraphs 1 through 47 above are realleged and incorporated herein by reference.

54. By his conduct, McNaughton in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, has employed devices, schemes and artifices to defraud, as more fully described above.

55. McNaughton knew, or was reckless in not knowing, the facts and circumstances described in this Complaint

56. By reason of the foregoing, McNaughton violated and is violating Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)].

COUNT III
Violations of Section 17(a)(2) and 17(a)(3) of the Securities Act
[15 U.S.C. § 77q(a)(2) and § 77q(a)(3)]
(Against Defendant McNaughton)

57. Paragraphs 1 through 47 above are realleged and incorporated herein by reference.

58. By his conduct, McNaughton, in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, has obtained property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or have engaged in transactions, practices or courses of business which have operated as a fraud and deceit upon purchasers of securities.

59. By reason of the foregoing, McNaughton violated and is violating Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)].

COUNT IV
Violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]
(Against Defendant McNaughton)

60. Paragraphs 1 through 47 above are realleged and incorporated herein by reference.

61. By his conduct, McNaughton in connection with the purchase or sale of securities of Haven Equity, by the use of means or instrumentalities of interstate commerce or of the mails, directly and indirectly: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices, and courses of business which operated as a fraud or deceit upon other persons, including purchasers and sellers of such securities.

62. McNaughton knew or was reckless in not knowing the facts and circumstances described in this Complaint.

63. By reason of the foregoing, McNaughton has violated and is violating Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].

RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests that the Court:

1. Grant a Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction, in forms consistent with Rule 65(d) of the Federal Rules of Civil Procedure, restraining and enjoining:

(a) McNaughton and Lech from violating Sections 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)];

(b) McNaughton his officers, agents, servants, employees, attorneys, and those persons in active concert or participation with him who receive actual notice of the Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts practices or courses of business described above, or in conduct of a similar purport and object, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)];

(c) McNaughton, his officers, agents, servants, employees, attorneys, and those persons in active concert or participation with him who receive actual notice of the Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts practices or courses of business described above, or in conduct of a similar purport and object, in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5], thereunder.

2. Order defendants to disgorge any and all ill-gotten gains, plus prejudgment interest.

3. Issue orders:

(a) Freezing the assets of McNaughton and Lech, officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them, unless otherwise ordered, who receive actual notice of the Order Freezing Assets by personal service or otherwise;

(b) Requiring defendants to repatriate assets;

(c) Granting expedited discovery; and

(d) Prohibiting defendants from destroying documents.

4. Impose civil penalties against McNaughton pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)], and impose civil penalties against Lech pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)].

5. Issue an Order requiring McNaughton and Lech to:

(a) Produce to the Plaintiff, within four days of the issuance of the Temporary Restraining Order, all current accountant's reports, bank statements, documents indicating title to real or personal property, and any other indicia of ownership or interest in property of any of the Defendants, which indicia of ownership or interest are now in the Defendants' actual or constructive possession;

(b) Produce to the Plaintiff, within four days of the issuance of the Temporary Restraining Order, all books, records and other documents in their actual or constructive possession relating to the offer or sale of the Haven Equity notes and Lech notes by the Defendants; and

(c) Provide to the Court, within four days of issuance of the Temporary Restraining Order, an accounting of all funds received from investors in connection with the investments in the Haven Equity and Lech notes sold by Defendants, the uses to which such investor funds were put and the amounts of any remaining such funds and their location, and an accounting of any remaining assets of the Defendants, and their location; provided, however, that nothing in the Order shall be construed to require Defendants to abandon any constitutional or other legal privilege which they may have available to them.

6. Grant such other and further relief as may be necessary and appropriate.

7. Retain jurisdiction over this action to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.

Dated: June ___, 2003

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