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Tire Recycler Charged with Fraud

From Rubber & Plastics News (subscription required) comes news of fraud regarding a tire recycling company.

On July 31, 2008, a federal district court in Detroit froze the assets of a Michigan-based tire recycling company, Encore Associated Leasing, LLC, as well its president and his son. The action followed an allegation of fraud by the Securities and Exchange Commission.

According to the SEC’s complaint, from September 2006 to July 2007, Merklinger raised at least $7.2 million from five investors through the sale of investments in his purported tire recycling business. The investments consisted of an interest in a tire shredding truck that Encore Leasing would lease from the investor and purportedly use in its business operations, and a $10,000 warrant for a 1% interest in Encore Leasing. Merklinger told investors that a working prototype of the shredding truck existed and that their trucks would be in operation shortly. He promised that Encore Leasing would pay the investors $15,000 in monthly leasing fees and investment interest, and that after five years, the investors could expect returns of up to 372% and the warrant would be worth at least $1.2 million. However, as alleged in the SEC’s complaint, there was no working prototype, no reasonable basis for Merklinger’s income and return figures, and the investors never received a dime from their investment. Instead, Merklinger used more than $950,000 of investor funds for his own personal benefit, including payments for rent, back taxes and the purchase of luxury automobiles and watercraft and extravagant landscaping and furnishings for his home. He also, as alleged in the SEC’s complaint, spent or transferred more than $172,000 for the benefit of his son, Brian Merklinger, and used more than $134,000 to make payments to investors in one of his other companies. Further, Merklinger failed to disclose to investors that he had been barred from participating in Ontario, Canada’s securities markets for ten years in connection with a prior investment scheme.

The SEC’s complaint charges Paul Merklinger and Encore Leasing with violating federal securities laws (specifically Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder). It seeks permanent injunctive relief, disgorgement of investors’ funds, and civil penalties. The complaint also seeks disgorgement of all investor funds provided to Brian Merklinger.

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