SEC accuses Owatonna fiber optics firm of investor fraud

On paper, the prospects for FiberPop Solutions of Owatonna appeared mesmerizing: profitable speed-of-light fiber-optic networks and data centers scattered across the Upper Midwest worth billions of dollars.

The Securities and Exchange Commission says the reality is in stark contrast.

"To date, FiberPop has no data centers, no employees and no operations," the SEC said in a lawsuit filed Tuesday against the company and owner James Louks. "It has never earned any revenue. It has no contracts with either content providers or customers."

In doubt is the fate of 90 investors who pumped "at least" $4.3 million into a project that promised a 100 percent return on investment.

Attorneys for the SEC were scheduled to appear before U.S. District Judge Patrick Schiltz on Wednesday to seek an emergency restraining order against Louks and FiberPop to prevent the solicitation of additional investors in violation of U.S. securities laws. However, late in the day Tuesday, Louks and his company agreed to stop seeking investors while the SEC civil suit proceeds.

Louks, 60, did not return requests for comment.

According to the SEC suit, filed in U.S. District Court in Minneapolis, Louks has operated his dubious investment scheme since 2003 with the promise of international financing from sources that ultimately engaged in shady transactions.

He raised money through word-of-mouth to friends and family and through individuals acting as promoters in group presentations, the SEC asserts.

Louks' plan called for the establishment of 17 distinct fiber-optic service areas in the Upper Midwest at a cost of $11 billion. In addition, with sufficient financing, FiberPop said it would spend $250 million to buy real estate, $1.4 billion to develop properties and $740 million for other projects.

But obtaining the funding proved sticky.

More than once, the SEC said, Louks turned to fraudulent schemes called "advance fee schemes" and "prime bank schemes" where investor funds are used to purchase and trade financial instruments in overseas markets in hopes of generating huge returns.

Louks' investments largely went south.

An investment of $200,000 was supposed to yield $20 million but delivered nothing. Another $500,000 deposited for a $35 million letter of credit was drained by the individual with whom Louks invested.

Several of the organizations and individuals that Louks did business with were either indicted on criminal charges or found in violation of federal securities laws, the SEC said.

Moreover, the SEC said Louks failed to perform due diligence on the partners with whom he invested. "Louks never even met many of the individuals … did not review the entities' financial statements and did not request proofs of funds," the suit said.

The lawsuit also says that Louks used a portion of the proceeds for personal items. Louks diverted at least $78,000 over the past four years, including the withdrawal of $59,000 from FiberPop's bank account and $19,000 in loan payments to another company he owns, the suit said.

Throughout the failed transactions, Louks assured his investors that success and profits were imminent.

In one instance in 2013, he told investors, "It is very difficult for anything to go wrong." In April of this year, he wrote: "My confidence level is very high. All of the way through the process I have felt that we have being [sic] working with people of good intentions and integrity."

According to the SEC, Louks previously worked for C&L Communications, a telecommunications construction company he owns with his brother.

FiberPop's website says it "will soon have offices and data centers throughout the Upper Midwest. We are committed to implementing communication solutions for communities, individuals and businesses."

David Phelps • 612-673-7269