The Complaint alleged that Citiwide and Cannon and are to be disbursed pursuant to a plan to be Committed other violations. It alleged that they improperly made a market in Musikahn securities before completing their participation in the initial public offering. It also alleged that Citiwide, aided and abetted by Cannon, failed to make and keep current certain books and records required of a registered broker-dealer. Citiwide's broker-dealer registration was revoked by the SEC in a prior administrative proceeding alleging different violations. In a companion proceeding, the SEC barred Cannon from association with any broker, dealer, investment company, investment advisor or municipal securities dealer with a right to reapply after the greater of five years from the entry of the bar order or any sentence to be imposed in two unrelated criminal actions in the New York State Courts. Litigation Release No. 11942/December 19, 1988 SECURITIES AND EXCHANGE COMMISSION v. CARDILLO TRAVEL SYSTEMS, INC. et al. (United States District Court for the Central District of California; Civil Action No. 87-4768) (CBM) (TX) The Securities and Exchange Commission announced that on December 12, 1988, the Honorable Consuelo B. Marshall, United States District Judge for the Central District of California, entered a Final Judgment of Permanent Injunction as to A. Walter Rognlien (“Rognlien”) of Beverly Hills, California. Rognlien is the chairman of the board of directors and chief executive officer of Cardillo Travel Systems, Inc., a Los Angeles based travel agency which previously had its stock listed on the American Stock Exchange. Without admitting or denying the allegations of the Complaint, Rognlien consented to the Final Judgment which permanently enjoins him from violations of Sections 10(b) and 13(b)(2) of the Securities Exchange Act of 1934 ("Exchange Act) and Rules 10b-5 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13(b)(2)(A) thereunder. As part of the settlement of this civil action, Rognlien paid $60,000 as disgorgement of benefits of his alleged insider trading. The monies paid by Rognlien are held in the registry of the court submitted' by the Commission. For further information, see Litigation Release Nos. 11492 and 11675. Litigation Release No. 11943/December 20, 1988 Dexter W. Lehtinen, United States Attorney for the Southern District of Florida, and Charles C. Harper, Associate Regional Administrator of the Miami Branch Office announced the return, on December 7, 1988, of a 91 count indictment against Peter Kevin Miller ("Miller"), a British citizen, Michael Arlen Blank ("Blank"), an attorney, and Kerry Russell Schwenke ("Schwenke"), an attorney, all residents of Palm Beach County, Florida. The indictment charges Miller, Blank and Schwerke with conspiracy [18 U.S.C. 371], mail fraud [18 U.S.C. 1341], wire fraud [18 U.S.C. 1343]. securities fraud [15 U.S.C. 77q(a)] and the offer and sale of unregistered securities [15 U.S.C. 77e(a) and (c)]. The indictment also charges Miller ard Blank with transporting stolen property in interstate commerce [18 U.S.C. 2314] and alien smuggling [8 U.S.C. 1324]. The incictment was returned by a federal Grand Jury sitting in West Palm Beach, Florida. The essence of the conspiracy and fraud, according to the indictment, was that Miller, Blank and Schwenke dev.sed and implemented a fraudulent scheme to solicit aliens, who desired to immigrate to the United States, to purchase preferred stock in South Florida Business Investments, Inc. ("SFBI"), or purchase businesses through British American Consultants, Inc. (“BAC”), both of which were controlled by Miller. The SFBI preferred stock was not registered with the Securities and Exchange Commission. In order to induce the aliens to invest, the defendants, among other things: (1) misrepresented that the alien/investors could obtain legal resident status in the United States by making a substantial investment; (2) falsely guaranteed a 14 to 18% annual dividend on SFBI stock; (3) falsely guaranteed refunds of the full investment in SFBI if the alien/investor's visa application was denied; (4) falsely represented that the SFBI investment program would not be undertaken or an immigra tion application filed unless Blank, the immigration attorney recommended to investors, was certain the application would be approved; (5) made false and misleading statements in letters, prospectuses, and in person, regarding the value and activities of SFBI and its subsidiaries; (6) disseminated false and misleading financial statements of SFBI; (7) misrepresented that investors would likely realize a 50-100% profit over five years; (8) failed to disclose the conflicts of interest between the positions held by Miller; (9) failed to disclose certain "inside transactions" and the resulting diversion of large sums of SFBI investor money to Miller or companies controlled by Miller; and (10) misrepresented that Miller's objective was "preservation of invested capital and real capital growth" when, in fact, Miller's objective was the diversion of all or most of such capital for his personal benefit. If convicted, Miller and Blank each face up to 490 years in prison, and Schwenke faces up to 275 years in prison. Litigation Release No. 11944/December 20, 1988 SECURITIES AND EXCHANGE COMMISSION v. COLONIAL INTERNATIONAL IMPORT, LTD., et al. (E. D. Wash.), Civil Action No. 88-510-JLQ Jack H. Bookey, Regional Administrator of the Seattle Regional Office, announced that Bruce H. Frost, an attorney, and Vern I. Holzer, residents of Spokane, Washington, were permanently enjoined by Judge Justin L. Quackenbush on December 12, 1988 in the U. S. District Court for the Eastern District of Washington, from violating federal securities registration and anti-fraud provisions and, as to Mr. Frost, broker-dealer registration provisions (Sections 5(a) and 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder). Mr. Frost and Mr. Holzer consented to entry of the injunction without admitting or denying the Commission's allegations. The Commission's complaint, filed on September 28, 1988, sought a permanent injunction against Mr. Frost, Mr. Holzer, Colonial International Import, Ltd. ("Colonial"), and against others. The complaint alleged that Mr. Frost, Mr. Holzer, and others violated the above cited federal securities laws in that they sold unregistered stock of Colonial and two other companies to the public while failing to disclose that the Regulation D Rule 504 732 SEC DOCKET sold; exemption claimed was unavailable; that some sales were sham; that insider stock was being and that the qualifications of management, assets listed on financial statements, and other information given to broker-dealers and the public, was misrepresented. Decrees of permanent injunction were previously entered against five other defendants, including Colonial, with their consent without admitting or denying the Commission's allegations. The action remains pending against other defendants. The Commission acknowledges the assistance of the Washington and West Virginia state securities authorities in connection with the investigation leading to the filing of this action. For further information, see SEC Litigation Release No. 11896 (October 17, 1988, 42 SEC Docket 83), and No. 11924 (November 29, 1988, 42 SEC Docket 7). Litigation Release No. 11945/December 20, 1988 UNITED STATES v. HARVEY RUBENSTEIN, No. CR85-98 (D. OR.); No. 85-583A (E.D. CA.) Jack H. Bookey, Regional Administrator of the Seattle Regional Office, Charles H. Turner, United States Attorney for the District of Oregon, and David F. Levi, United States Attorney for the Eastern District of California, announced that on December 14, 1988, Harvey Rubenstein, a Canadian citizen of Toronto, Ontario, Canada, entered guilty pleas to two criminal counts of securities fraud for violations of Section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5 thereunder, and one count of wire fraud in two separate cases. The two securities fraud counts involve transactions in Portland, Oregon at Paulson Investment Co. and Omega Northwest, Inc. (which is no longer in business) in 1982. The wire fraud count involves a transaction at Merrill Lynch, Pierce, Fenner & Smith in Sacramento, California, also in 1982. The plea to the California count was made in the U.S. District Court in Oregon pursuant to Rule 20 of the Federal Rules of Criminal Procedure. In all three transactions, Rubenstein engaged in wash sales and matched orders for the purchase and sale of securities. The stocks involved were Western Consortium, Inc., a Utah corporation, and BMI Capital, Inc., a Canadian corporation. District Court Judge Malcolm F. Marsh of Volume 42, No. 10 Oregon received the pleas but reserved sentencing until February 27, 1989. For further details, see Litigation Releases No. 10847 and 10872. Litigation Release No. 11946/December 20, 1988 UNITED STATES v. JERRY LAMPLEY, TOM ELLZEY, AND DENNIS PILLER, Criminal Nos. S 88-00054 (G), S 88-00053 (G), & S 88-00052 (G) (Southern District of Mississippi, Southern Division) George Phillips, United States Attorney for the Southern District of Mississippi, the United States Securities and Exchange Commission, the U.S. Postal Inspection Service, and the Mississippi Secretary of State's Office announced that, on December 19, 1988, Jerry Lampley, Tom Ellzey, and Dennis Piller pled guilty to one count of mail fraud, one count of securities fraud, and one count of sale of unregistered securities each. Lampley, Ellzey, and Piller pled pursuant to informations filed on December 19, 1988, in the United States District Court for the Southern District of Mississippi, Southern Division. According to the informations, Lampley, Ellzey, and Piller, by and through various entities they controlled, falsely represented or caused to be falsely represented material information concerning securities in the form of undivided fractional interests in oil and gas programs, including, inter alia, the amount of return the investor would receive on the investment by falsely inflating the oil and gas reserve figures in geological reports contained in written summaries of the investment, information as to the "mark-up" on the securities, the use of proceeds of the offering, and the distribution of revenues. On July 23, 1987, the Commission filed an injunctive action in the U.S. District Court for the Southern District of Texas against ten individuals (including Lampley, Ellzey, and Piller) and twenty corporations entitled Securities and Exchange Commission v. Petro-Serve, Ltd., et al. (Litigation Release No. 11495). In that action, the court granted the Commission's request for temporary restraining orders and preliminary injunctions against all defendants for violation of the antifraud and registration provisions of the securities laws. That action is currently pending. Litigation Release No. 11947/December 20, 1988 UNITED STATES V. MICHAEL R. BRYANT, Criminal Information No. CR-88-501A (U.S.D.C. N.D. GA) Robert L. Barr, United States Attorney for the Northern District of Georgia and Richard P. Wessel, Administrator of the Atlanta Regional Office of the Securities and Exchange Commission ("Commission"), announced that on December 16 1988, Michael R. Bryant (“Bryant”) of Roswell Georgia was sentenced to five years probation and ordered to make restitution of $149,002 for violations of the record keeping provisions of the Investment Advisers Act of 1940, 15 U.S.C §§ 80b-4 and 80b-17, by the Honorable Richard C. Freeman, United States District Court Judge. Bryant had previously on November 4, 1988 pled guilty to a criminal information charging one count of violations of the record keeping provisions of the Investment Advisers Act. The information was the result of ongoing investigations by the Cornmission, the Federal Bureau of Investigation, the Georgia Securities Commission and the U.S. Attorney's Office. The information charges tha: from on or about December 26, 1985 through on or about June 30, 1986, within the Northern District of Georgia, Bryant, operating through Investment Management Associates, a Georgia general partnership registered with the Commission as an investment adviser, made use of the mails and the means and instrumentalities of interstate commerce in connection with its business as an investment adviser, willfully, knowingly and unlawfully failed to make and keep certain prescribed records, namely, securities purchase and sale journals, cash receipts and disbursement records, general and auxiliary ledgers, tria balances, financial statements, and internal audit work papers, said records being required as necessary and appropriate in the public interest and for the protection of investors. For further nformation, see Litigation Releases Nos. 11870 and 11925. FREEDOM OF INFORMATION ACT FREEDOM OF INFORMATION ACT Release No. 98/December 20, 1988 In the Matter of Freedom of Information Act Appeal of CHRIS MILLS ORDER GRANTING ACCESS The General Counsel sent the following letter to Chris Mills granting access to a list of all persons to whom the Commission sends Litigation, Actions and Proceedings Bulletin. The General Counsel determined that the list was not exempt from disclosure under FOIA Exemption 2, 5 U.S.C. 552(b)(2). Mr. Chris Mills Information Unlimited, Inc. 355 Lancaster Avenue Haverford, Pennsylvania 19041 Re: Freedom of Information Act Appeal No. 88-1889 Dear Mr. Mills: On behalf of the Commission, pursuant to delegated authority, I have considered your October 21, 1988 appeal from the Freedom of Information Act (FOIA) Officer's denial of your October 6, 1988 request for access to a list of all persons to whom the Commission sends Litigation, Actions and Proceedings Bulletin. In denying you access to this list, the FOIA Officer relied on Exemption 2, 5 U.S.C. 552(b)(2), and the Commission's rule implementing that exemption, 17 C.F.R. 200.80(b)(2). For the reasons set forth below, I have determined to reverse the FOIA Officer's decision. Exemption 2 protects from disclosure information "related solely to the internal rules and practices of an agency." 5 U.S.C. 552(b)(2). The Court of Appeals for the District of Columbia Circuit has developed a two-part test for claims under this exemption: (1) whether the document meets a test of "predominant internality,” and (2) whether disclosure "significantly risks circumvention of agency regulations or statutes." Crooker v. Bureau of Alcohol, Tobacco & Firearms, 670 F.2d 1051, 1074 (D.C. Cir. 1981). See also National Treasury Employees Union v. Customs Serv., 802 F.2d 525 (D.C. Cir. 1986). The mailing list at issue in this appeal does not satisfy this test. The Bulletin, which is itself available to the public in the Commission's public reference room, is mailed to "official enforce-ment and regulatory agencies." (Second printed page of Bulletin.) The Commission does not make a calculated decision as to the distribution list, but rather accepts any request for the Bulletin from an appropriate agency. The knowledge that certain state securities departments receive updated lists of violators of the securities laws would not appear to aid in the circumvention of those laws. To obtain a copy of the Litigation, Actions and Proceedings Bulletin distribution list, please contact Mr. John Heine at (202) 272-7422. If you have any questions regarding this determination, please contact Rosalind C. Cohen, Assistant General Counsel, at (202) 272-2493. For the Commission pursuant to delegated authority. Daniel L. Goelzer General Counsel 734 SEC DOCKET Volume 42, No. 10 |