U.S. District Judge Bruce Jenkins issued a temporary restraining order, froze the assets of National Note and appointed attorney Wayne Klein as a receiver to take over the company's operations.
Palmer told potential investors that National Note had "a perfect record," having never missed a payment of principal or interest since it was formed in 1992, the SEC said. But he failed to tell them that in recent years all of his company's business was conducted with companies he owned, that National Note was insolvent and that payments to initial and early investors were being made with funds from new investors, according to the lawsuit.
"Because investors are being repaid from new investor funds, Palmer's operation is a classic Ponzi scheme," the lawsuit says.
Ken Israel, regional director in the SEC's Salt Lake City office, said the 600 investors were from around the country. The agency alleges National Note had been violating securities laws since at least 2009, he said.
"That's when we can definitively say it morphed into a Ponzi scheme,"Israel said.
A voice mail message left at National Note of Utah for Palmer was not returned. An attorney for the company said the lawsuit was being reviewed and declined to comment.
Provo attorney Thomas J. Scribner filed a lawsuit in state court in May on behalf of an investor in National Note who he said lost more than $100,000.
"Unfortunately I represent one of the poor creditors that just got fleeced," he said.
According to SEC court filings, Palmer told investors that the assets in which he invested were secure and that they produced sufficient revenue to pay the guaranteed 12 percent annual returns. But, in fact, there was little revenue to repay investors, regulators said.
According to the agency:
• In 2009, National Note received $18.6 million from new investors and used $14 million (75 percent) of that to make principal and interest payments to earlier investors.
• In 2010, the company received $22 million from new investors and used $18 million (81 percent) to pay earlier investors.
• In 2011, the company took in $14.6 million from new investors, with $12.7 million (79 percent) of those funds going to earlier investors.
Last October, National Note stopped making interest payments to investors, but Palmer continued to solicit new investors while not disclosing that the company was delinquent in paying prior investors, the lawsuit says.
From the beginning of 2012 to March 31, National Note received $913,958 from new investors and used $740,105 (81 percent) to pay earlier investors, it said.
Investor contact info
Attorney Wayne Klein has been appointed receiver for National Note of Utah. Investors with questions can contact him at 801-534-4455. His website, kleinutah.com, also will have information posted within a few days.