SEC Blocks Tire Recycling Project

The Securities and Exchange Commission has obtained emergency relief to stop an allegedly fraudulent scheme that raised more than $7.2 million from investors who were told the money would be used in a business shredding and recycling used tires. However, the SEC alleges, the tire shredding equipment did not work, there was no reasonable basis for the company’s income and return figures, and the investors never received a dime from their investment.

The suit obtained a preliminary injunction and freeze against Paul Merlinger, Novi, Mich., and Encore Associated Leasing, LLC, the parties involved in the money raising venture.

The decision, by the U.S. District Court for the Eastern District of Michigan, was made July 31. It follows an order, made on July 24, by the same judge, which temporarily prohibited the company from attempting to offer securities or other investments and from transferring any assets.

According to the complaint, from September 2006 to July 2007, Merklinger raised $7.2 million for a tire recycling business. The investment consisted of an interest in a tire shredding truck that Encore Leasing would lease from the investor and use in its business operations, as well as warrants in the company.

However, as alleged by the SEC, there was no working prototype for the tire shredding vehicle, there was no reasonable basis for the defendant’s income, and investors never received income from the investment.

"Paul Merklinger preyed on the goodwill of investors by telling them that they were making an investment that would be good for the environment. Unfortunately, as alleged in our complaint, the only environment Mr. Merklinger was improving was his own when he used investor funds to buy luxury automobiles, purchase posh offices, and decorate his home," said Tim Warren, Associate Regional Director of the SEC's Chicago Regional Office.

The SEC's complaint charges Merklinger and Encore Leasing with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement, and civil penalties. The SEC further seeks disgorgement of all investor funds or assets acquired with investor funds from Relief Defendant Brian Merklinger.

The District Court judge also issued an asset freeze against Brian Merlinger, the son of the Paul Merlkinger.