Regulators allege David Marion defrauded investors in a failed expansion effort.
Federal regulators filed a lawsuit Monday in St. Paul alleging that Minneapolis coin dealer David Marion duped investors out of more than $1 million, gambling away much of the money that was supposed to be used to expand his company.
Marion, 52, of Shorewood, is sole owner of International Rarities Inc., which operates out of the downtown Tri-Tech building. The company filed for Chapter 11 bankruptcy protection in August and is now being run by a court-appointed trustee who is evaluating whether it can be salvaged.
The Star Tribune reported in May that some investors complained that Marion had sold them shares in an entity called International Rarities Holdings, a Nevada firm that he planned to use to take his privately held coin company public. Investors said they were told they could reap as much as $15 for every $1 invested.
An investigation by the newspaper last year found disturbing patterns within the largely unregulated coin industry, which conducts business primarily with wealthy, elderly clients. Many Twin Cities coin telemarketers, including International Rarities, have been staffed with ex-cons and individuals with serious substance-abuse problems.
The FBI raided International Rarities in September and said in court documents that investigators had reason to believe that Marion defrauded clients and investors. He hasn't been charged with any crimes.
Now, the U.S. Securities and Exchange Commission (SEC) alleges that from November 2008 through July 2009, Marion raised just over $1 million from at least 26 investors in 13 states, including Minnesota, under false pretenses.
"Marion sold the investors shares of a worthless shell company, and he knew that it was a worthless shell company," the SEC alleged.
Marion and his staff allegedly told investors the coin company was a subsidiary of the holding company when they were actually separate entities, the suit says. In fact, the holding company could not legally own the coin company because of the way the two entities were organized, the suit says.
Marion was majority owner of the holding company and owned the coin company outright, according to court records.
Marion also told investors that the holding company had a seven-member board with three independent directors. "In fact, several did not know that Marion had unilaterally deemed them to be board members," the suit says.
According to the SEC, Marion diverted most of the investor funds to himself or his coin company. Of the $1 million raised, more than $700,000 went to Marion's own uses, the SEC says. He spent nearly $200,000 gambling, withdrew nearly $100,000 in cash and deposited more than $400,000 into personal accounts, much of which he lost gambling, the suit says. It says he also used $269,394 of investor funds on coin company employees, independent contractors and unrelated expenses.
A private placement memorandum indicated the holding company was in the process of an initial public offering on the Over the Counter Bulletin Board. But Marion took few steps to take the company public, the SEC says.
"Marion used less than 7 percent, or $63,271, of the investor funds on any purpose that could reasonably be construed to be for IR Holdings' benefit."
The SEC seeks a court order declaring that Marion and the holding company committed several securities law violations; permanently enjoining him, his cohorts and the holding company from additional violations; an order that Marion and the defunct holding company repay the investors with interest; and an order that Marion pay an appropriate civil fine.
Dan Browning • 612-673-4493