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They had 14 days from the 14th to file their 10-Q. Maybe they filed it.
They don't claim to be mining.... they did say that they produced a bunch of dore bars, some years back....but those could have have been faked, or are mostly iron....
Rumor is that there was (or is) a drill rig on site.....for core sampling of the now (compressed into rock,lol?) dirt....
ummm, atlanta, I've never bought this stock.....only want the truth to be known.
Don't trust Sheppard, Magee, or any of the new staff. They know nothing of mining, and were easily roped in to this story.
All you need to know is that it is the SAME nearly valueless dirt. NO Valid assays have been done, or will ever be done, to prove differently. IMO....but I'm convinced that statement will never be proven wrong
Your assumption is wrong. It is just dirt. Ask yourself, if it was as rich as they've said, why did not the PM world take notice? Why did they not process and sell it? It is supposedly concentrates, which would be a breeze to process?
Answer, it is dirt.
As far as Sheppard and the other new guys, they are very very naive...and know nothing of mining. As well, Sheppard's background is not as clean as has been portrayed. He is just as slimy as the rest of them, imo. Didn't know what he was getting himself into, and now, doesn't know how to extricate himself....
Also, who was at the helm when the massive dilution and unauthorized selling occurred? Sure, maybe Furlong fooled him, but he was the CEO, right...and should be held responsible.
Good for you...I don't trade scam stocks....don't judge those who do..as long as they don't try to say the company is legit.
This company is about out of gas..not much left to do to get a pump going..short of more lies...as in more bogus assays and rumors of buyers....
and still there's over a billion shares to dump.....
How can you say you will be happy when your $ gambled dwindles to nothing?
Yup, soooooonnn has been the rallying cry of you long suffering believers for years now.
I do admire your patience.
Those dore bars are most certainly mostly made up of iron...rumor was, Jordan had a filing cabinet full of 'em.
Those "ore concentrates" are nothing but tailings. You KNOW that. No mining has ever been done by HCCA/NMC....those are nothing but tailings from Speileman and Bender's joke of an operation that produced pathetically little Au........
and there is no reasonable explanation why, when pgm's have NEVER been found in the SW in marketable quantiites, an unproven technique like plasma furnace use would be able (and required) to unleash such riches as the company claims. If that were true, the majors would long long ago have exploited SV and other possible pgm bearing sites. Why have they not? Because they don't exist.
As far as is known, there is still NO interest in this dirt....just as there have been NO valid assays done that show any value. PERIOD!!!
Can you say SCAM?
Atlanta, Your use of the term basher is tired and old. This stock has not much more room to fall.....and no amount of "bashing" will speed up its fall.
As I had said many times, I only seek the truth...and that is something that you will not get from this company....not a single thing they've done over the years has been above board.....they've presented themselves under false pretenses, and sold shares based on fraudulent information. NMC has done exactly the same as HCCA...but has done it under the radar of the SEC, being as they are an unreporting grey sheet stock...which, by the way, should never have been allowed to trade, in light of HCCA's revocation. I assume you know this story?
The naivete of the masses of believers on the censored Pt board is amazing. They cling to rumors of things like new testing being done that should any day now skyrocket the stock.
And, as you see, your points were thoroughly debunked.
Wake up, you've been hoodwinked by a bunch of con artists.
you said "as the civil case only determined they did not have the bookable minerals at that time, 7 years ago"
It the same dirt, alias, you poor deluded fella......
and STILL worthless.
There is no tailings pile on earth that has values even 1/10th of what the most recent laughable Diversifed report showed.
wake up atlanta.....all geosyntech did was determine the amount of tonnage in the pits. That's it...... and their figure was close to earlier estimates....both of which are way lower than the earlier 500k ton guess..by Jordan and others.
They had nothing to do with determining any value in the pits....which still remains at near zero, based on the ONLY valid assays yet done on it...which is nothing but tailings....the company has been fibbing by calling the dirt "ore" and "ore concentrates"
Samples took care of the your other posit. Just be patient, Sheppard and others will (or should) get their due...
As usual, you post drivel.....what a waste of bandwidth...
Bio Heal was a fraudulent new stock offering.....no correlation with HCCA, an scam which went on for years. Seriously doubt that anyone will see any compensation for their losses.
ummmm, you, alias....right?
By the way, I don't bash, I seek truth.
I took note of that part of the ruling as well, alba!
Let's hope that spells doom for the current incarnation of this scam.
Also of note is the numbers of NMC shares dumped dwarf those HCCA. Illicit $ gains as well.
On what basis? The most recent news was a joke.....shooting seismic on tailings pits was as funny as all get out.
And, the assays by Diverisfied are bogus on their face. Not third party or chain of custody, but done in Prescott NMC lab.
The ONLY valid assays done on the SV dirt in the last 10 years show it to be just that, DIRT!!
Wake up.
Conjecture on your part. All MM's do with grey sheet garbage like this is match up retail orders. They are not allowed to "make" a market in a stock that has no 15c2-11 on file.
Don't forget, there is still a billion or two of stock to dump. Based on recent history, it is highly likely that the dumpage continueth.
Gold peaked at 846 overnight before some profit taking. It's now at 832.10.
Trouble is, where the heck are they gonna find any Pt? Jordan the alchemist is forever gone.
Thanks for reposting that, i-vest.....which includes NMC's lie----"independant custodial assay"....what a crock of bulls---
The only buyer they ever had was conned himself, and is now sueing to recover his funds.
atlanta, I've spoken to two or three different AZ folks in the past. They know that NMC has squat.....but, due to the pasting they took in that court case, must be careful what they say. As well, the SEC has been put on notice by several of us about this story..as if they didn't know the HCCA connection. But they take little notice of non reporting grey sheet garbage.
I work with trees, not dirt...to the tune of 60-70 hours a week running the business.
I spend very little time on NMC boards....just must see to it that no newbies jump into the scam without knowing the story.
He doesn't really have "control", as he owns an undisclosed number of shares. It may well be that Furlong/his companies/ family, etc still own the most shares- no way to know for sure though. Furlong appointed him pres 3 years ago, prolly cause he knew it would look better not to have himself at the helm, being as he was embroiled in the SEC case.
I thought it was the alchemist Jordan...a wannabe assayer.
Actually, the way they presented the property, and the way HCCA valued it, was beyond probable....and, thus, fraudulent---and the court agreed.
There is nothing of value there....but you can surely keep dreaming.
There is zero evidence that anyone is interested in that dirt. Larry Wright was hoodwinked, and is now sueing to recover damages. he finally realized he'd been swindled.
"With its 2007 independent custodial assay completed"
They lied, or at least attempted to deceive. Those assays weren't custodial, as they were done in their own lab.....and Diverisifed had no business doing pm assays anyhow. They aren't in that business.
There has NEVER been a bonafide assay done on any of their properties that showed anything of any value. PERIOD!
You've been reeled in, hook, line, and sinker.....by conmen.
Thanks for setting poor alias straight, alba.....
Gold up $16.50, too bad NMC has none.
and no pgm's either.
By the way, my only motive is to make sure the truth is told about this pathetic company.
They'd have to file a 15c2-11 and get a market maker to sign off in order to trade pink. Until then, they are mired in grey sheet purgatory, which is better than they deserve which is revokation.
Haggard is their attorney. Why would that be good news?
by the way, where is the "good" news? Nothing good came out of the SH meeting, but a laughable presentation, put together by folks that know nothing of mining. No audit, no valid assays, no ore sale (because it's worthless dirt, pretty much)
The company is naught but an incarnation of the proven scam HCCA.
Wake up, alias..Silver Valley would take $millions just to find out if there's anything worth mining there. It is obvious that the little study they did was bogus. No way in tarnation are there multiple ounces per ton of pgm's at any of the 3 sites, much less one of them.
Big whoopie.....Smith's shares are worth a whopping $5000.
and MM's don't play games with grey sheet garbage, at least enough to be significant. Prewtty much all they are allowed to do is match order requests. There may be some offshore parties messing around with some shorting, but no retail US investors can short this stock.
The reason it is down is because it is a scam, period.
not just Az....the SEC case against the former principals is now about over. It was confirmed that the dirt is....dirt....
Yup, and here's another. Franco was involved in fax blasting for Aquavie Beverage back in 2003. I've lost the link implicating JRA, but here's the SEC release:
http://www.sec.gov/litigation/litreleases/lr18966.htm</a
Franco's involvement with NMCX is telling...as it's an out and out scam.
Andy Hill finally disappeared from the NMCX scene....that ship will sink with or without him, but he deserves to go down with it.
Alias1099/investorvest, you need to refill that med prescription.
You said, NMC "may" have........how could that be a "fact"?
The fact is, they have nothing, as proven by the SEC case that is settled but for the final penalties.
If they had even 1/10 of what they've
claimed, the mining world would have taken notice. But, alas, nothing.....
Anon, here's a good one for ya...
http://jimewescamp.250x.com/index7.html
shows NMC tried to pay royalty on air, instead of actual sold product....
and something I put together over 2 years ago. Not all the included links work...
http://investorshub.advfn.com/boards/read_msg.asp?message_id=6110897
Good work!!
But they can't...those bars prolly came out of Jordan's filing cabinet...and are prolly mostly iron.....
they've NEVER proven that they've produced anything of any value, ever! and NEVER will....imo
In doing your research, you will realize that NMC is nothing but a reincarnated HCCA, which is a proven scam. They have promised an audit for years, it has never happened, and never will, imo. They have produced 100% bogus laughable assays, even claiming the most recent ones were done chain of custody, when in fact, they were done in house, and by an outfit that had no business assaying pm's.
This company is, was, and always will be 100% scam.
It has only existed as a vehicle for Furlong and others to dump anothre 6 billion shares on the unsuspecting public, a figure which dwarfs the shares that they dumped while at the helm of HCCA....see the SEC action for the results of that case.
Investorvest is nothing but a naive head case, who seems to be off his meds....
Yup, alba, he is insane, as always...
IV, there is nothing at Silver Valley but land that would need to have millions spent to determine if there's anything of value in the ground...similar to scores of old mining claims, or mines that had a little historic production.
And NMC is nothing but a warmed over HCCA....same, totally unproven anything, period. 100% bogus, and scam, and it will go down sooner or later....hopefully sooner, if the SEC realizes what is going on.....
Simple....volume is low, and there's still a ton of naive people holding stock, that refuse to face the reality that the company is a scam...
..imo...
UNITED STATES DISTRICT COURT 10/11/207
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff, )
) Civil Action No.
vs. ) 03C-1507
)
MICHAEL J. PIETRZAK and MAURICE W. ) Judge Grady
FURLONG, )
)
Defendants. )
________________________________________________)
SEC’S REPLY TO DEFENDANTS’ RESPONSE TO THE SEC’S MOTION TO IMPOSE PERMANENT INJUNCTIONS, DISGORGEMENT, PREJUDGMENT INTEREST, CIVIL PENALTIES, OFFICER-DIRECTOR BARS AND PENNY STOCK BARS AGAINST FURLONG AND PIETRZAK, AND TO ENTER FINAL JUDGMENT AGAINST THEM
The SEC, in response to the Court’s order of October 3, 2007, hereby files its reply brief which sets forth “the legal authorities it will rely on in reply to the points raised in the defendants’ response brief.” See Court’s Order 10/3/2007. The bulk of the legal authority relied upon by the SEC is set forth in its brief supporting its motion filed with the Court on August 27, 2007, which except for certain points of reply, will not be repeated in this reply.
The defendants have alleged various factors, that they contend are mitigating in nature, which the Court should consider in imposing final judgment against Furlong and Pietrzak. These “factors,” among other things, include self-serving contentions that Furlong and Pietrzak “reinvested” money received from their stock sales during the fraud back into the company; that they did not override CFO Berry and Auditor McGhie in preparing the balance sheet and responding to the SEC; and that the defendants did not “cut and run” from the SEC’s investigation, but rather “engaged it in a dialogue with the aim of resolving complex accounting issues.” See Response Brief, pp1-2. The “factors” that the defendants ask the Court to adopt as mitigating are either irrelevant or are
Case 1:03-cv-01507 Document 269 Filed 10/11/2007 Page 1 of 10
essentially contrary to the conclusions of the jury verdict in this case, and should be disregarded.
The jury’s responses to the verdict interrogatories indicated that it found fraud, against both defendants, on every category of assets that HCCA recorded on its balance sheet between 1996 and 2001. Further, the jury found fraud in virtually all press releases that the defendants caused HCCA to issue between 1996 and 2001. This scheme was a “pump and dump” whereby the defendants issued false “good news” press releases to pump the stock price, which they then often followed with large sales of their personal HCCA stock. It was Furlong and Pietrzak who consistently benefited from the fraud, at the expense of other shareholders. It is abundantly clear from Furlong’s and Pietrzak’s trial testimony that they lived essentially, over the 3½ year period of the fraud, from their personal stock sales in HCCA. During the fraud, they were dumping stock on an unsuspecting public based upon information that they released in the marketplace, which they knew to be false. From the jury’s verdict (including its responses to the verdict interrogatories), no other reasonable conclusion can be reached. To that end, there are no real mitigating “factors” that this Court should consider in imposing final judgment against the defendants.
I. INJUNCTIVE RELIEF
The defendants contest the entry of a permanent injunction, and contend that the injunction against them “should be limited to a reasonable period of time.” See Response Brief, p. 3. The case of SEC v. Holschuh, 694 F.2d 130 (7th Cir. 1982) provides guidance to this Court as to the considerations for the entry of a permanent injunction. In Holschuh, the Seventh Circuit held that in an action for a statutory injunction, the Court, in predicting the likelihood of future violations, must assess the totality of the circumstances surrounding each defendant and his violation, including such factors as the gravity of the harm caused by the offense; the extent of the defendant’s participation and the degree of his scienter; isolated or recurrent nature of infraction and likelihood that the defendant’s customary business activities might again involve him in such transaction; the defendant’s recognition as to his own culpability; and the sincerity of his assurances against future violations. Id. at 144.
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Notwithstanding the fact that Furlong and Pietrzak have failed to cite any legal authority to support a time limited rather than permanent injunction, this is a case where egregious circumstances exist, and a permanent injunction is more than warranted. For example, Furlong is a long time recidivist with securities violations going back to 1988. He has been previously enjoined by a federal court against further securities laws violations, and has also been ordered to cease and desist from various securities laws violations in at least four (4) states. Furthermore, Furlong has admitted that during the scheme, and for years prior, he has not paid income tax on any of his income derived from the fraud. The HCCA scheme was not an isolated incident of securities fraud, but a multiyear scheme which indicates a predilection for a continuing fraud. As to Pietrzak, he pled guilty to a misdemeanor in Illinois for aiding and abetting others in connection with the misapplication of bank funds, and has also admitted that for much of the period of the HCCA fraud, he failed to file tax returns or failed to pay taxes on his earnings. Both defendants make much ado about their 4/22/2005 resignations as HCCA board members. However, this fact is of little import to the entry of a permanent injunction. First, their resignation occurred more than four (4) years after the period for which they were sued by the SEC in this fraud. Secondly, their resignation is of little import to the likelihood of future violations, as the defendants do not need the corporate vehicle of HCCA (or its successors) to engage in further securities fraud—they can simply buy another shell corporation and start a fraud all over again. For both Pietrzak and Furlong, this was a calculated scheme over a long period of time. Moreover, neither of the defendants has admitted wrongdoing in this matter. Finally, as to their promise to never again serve as an officer or director of another public company, they could simply change their minds tomorrow. The public is not protected in this case, without the entry of a permanent injunction.
II. DISGORGEMENT
The Court’s recent order concluded that it had considered the authorities cited by the SEC in its motion, and has ruled that the case authority supported the SEC’s position that Furlong and Pietrzak should not be given any set-off on disgorgement for alleged business expenses, or “reinvestment” against the SEC’s claim for disgorgement. See Court’s Order 10/3/2007. The SEC alleged, and proved, that HCCA’s assets were
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fraudulently recorded. The defendants argue that the SEC “changed its mind” on how assets should be recorded, and that they should have some set off on disgorgement for the period of time prior to a clear direction from the SEC to remove assets. It related primarily to the real estate assets. That the SEC “changed its mind” on how assets should be recorded, was an argument advanced by the defendants at trial. However, that argument was one which the jury soundly rejected. It is readily apparent from the verdict interrogatories, which found fraud as to all of HCCA’s assets, that the jury held the defendants, as officers and directors of HCCA, responsible for the bookings of the various assets in HCCA’s financial statements. Any attempt to carve down the period of disgorgement based upon this theory is wholly unsupported by the jury verdict or by the law on disgorgement. Not surprisingly, the defendants offer no case or statutory authority to support their bald contention that the Court should narrow the calculation of disgorgement in this manner. Their argument is without merit.
The defendants contend that brokerage commissions paid by Pietrzak and Furlong should be deducted from the disgorgement they are ordered to pay. See Response Brief, p. 5. It is arguably discretionary with the Court as to whether brokerage commissions should be deducted from disgorgement, and some indirect authority exists on that point. SEC v. Bocchino, 2002 WL 31528472 (S.D.N.Y. 2002); Litton Industries v. Lehman Brothers Kuhn Loeb, Inc. 734 F. Supp. 1071, 1077 (S.D.N.Y. 1990). While this Court should note that Litton is not an SEC enforcement action, but is rather a tender offer case between private parties, the Court in that case reasoned that direct transaction expenses such as brokerage commissions could be deducted from disgorgement. There is no case law which compels this Court to deduct brokerage commissions in this case. Litton provides little authority for this Court, on this issue. In fact, the more compelling consideration is that while Furlong and Pietrzak argue that the Court should allow them credit for commissions they paid, they have failed to offer any proof as to a calculation, by percentage or otherwise, which would establish that they in fact paid sales commissions, when they sold their HCCA stock between 1997 and June 30, 2000. Given their complete silence on the amount of brokerage commissions they contend should be deducted, the Court should disallow this deduction for failure to prove commissions allegedly paid.
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III. PREJUDGMENT INTEREST
On the issue of prejudgment interest, Furlong and Pietrzak contend that interest should be disallowed because prejudgment interest in this case “would not be used to compensate investors, but would be paid to the U.S. Treasury.” See Response Brief, p. 6. This misses the point entirely on the issues of both disgorgement and prejudgment interest. Without question, although disgorgement can be used to reimburse investors, the purpose of disgorgement is not to reimburse defrauded investors, but rather is a method based in equity to force a defendant to give up the amount by which he was unjustly enriched—and it is therefore unlike an award for damages. SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1475 (2d Cir. 1996). The decision whether to grant prejudgment interest and the rate used if such interest is granted are matters left to the district court’s broad discretion. Id. at 1476. Furthermore, in deciding whether an award of prejudgment interest is warranted, the Court should consider that in an enforcement action brought by a regulatory agency, the remedial purpose of the statute takes on special importance. As set forth in First Jersey at 1476, when the SEC itself orders disgorgement, the interest rate it imposes is generally the IRS underpayment rate, which essentially reflects what it would have cost to borrow the money from the government, and therefore reasonably approximates one of the benefits that the defendants derived from the fraud. Courts have therefore approved the use of the IRS underpayment rate in connection with disgorgement. SEC v. Drexel Burnham Lambert, Inc., 837 F.Supp. 587, 612 n.8 (S.D.N.Y. 1993), affirmed 16 F.3d 520 (2d Cir. 1994), cert. denied 513 U.S. 1077, 115 S.Ct. 724, 130 L.Ed.2d 629 (1995); SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1476 (2d Cir. 1996). Further, the law supports the conclusion that prejudgment interest should be paid for the entire period from the time of the defendants’ unlawful gains to the entry of the judgment. Indeed, even where litigation was protracted through some fault of the SEC, defendants have been held plainly to have had the use of their unlawful profits for the entire period, and given the remedial purpose of the statute, the goal of depriving culpable defendants of their unlawful gains has been upheld on appeal. SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1477 (2d Cir. 1996). Whether Furlong and Pietrzak used the funds to pay living expenses, or to gamble, or to “reinvest” in HCCA as they self-servingly contend, they nonetheless have had free use of
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the disgorgement proceeds for a decade. Prejudgment interest is appropriate for the entire period of 10 years because to do otherwise would amount to interest free use of those ill-gotten gains over that decade.
IV. PENNY STOCK BAR
Contrary to the defendants’ assertion, the SEC is not asking the Court to retroactively apply the statute authorizing penny stock bars. The SEC is asking the Court to issue a penny stock bar based upon the Court’s inherent equitable powers. Federal courts possess broad equitable powers to impose ancillary relief upon individuals who violate the federal securities laws. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1103 (2d Cir. 1972) (“Once the equity jurisdiction of the district court has been properly invoked by a showing of a securities law violation, the court possesses the necessary power to fashion an appropriate remedy.”) Therefore, this Court should use its equitable powers to impose penny stock bars against Furlong and Pietrzak, thereby providing protection to the public. In SEC v. Posner, 16 F.3d 520 (2d Cir. 1994), the 2d Circuit upheld a district court’s order that imposed O&D bars on the defendants even though the conduct occurred before the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, Pub. L. No. 101-429, 104 Stat. 931 (“Remedies Act”), added O&D bars to the available statutory remedies in securities laws. Rather than decide whether the Remedies Act applied retroactively, the 2d Cir. upheld the district court because it had used its equitable powers as an alternate basis for imposing the bar. Id. at 521. Similarly, this court should impose penny stock bars on Furlong and Pietrzak using its own equitable powers.1 A person participating in an offering of penny stock includes one who engages “in activities with a[n] . . . issuer for purposes of the issuing, trading, or inducing or attempting to induce the purchase or sale of, any penny stock.” §20(g)(2) of the Securities Act and §21(d)(6)(B) of the Exchange Act.
Furlong and Pietrzak violated §17(a) of the Securities Act and §§10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and aided and abetted
1 Section 603 of the Sarbanes-Oxley Act amended §20 of the Securities Act and §21(d) of the Exchange Act to provide federal courts with statutory authority to bar an individual from participating in an offering of penny stock. The SEC seeks penny stock bars against Furlong and Pietrzak even though their conduct took place prior to the enactment of the Sarbanes-Oxley Act.
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violations of §§13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder by, inter alia, filing several false and misleading reports and registration statements from 1996 through 1999, publishing false and misleading press releases and a letter to shareholders, and fraudulently selling their HCCA stock. During those years, HCCA stock was a penny stock, because its price was less than $5, its net tangible assets were negligible, and it had no revenues. See §3(a)(51)(A) of the Exchange Act and Rule 3a51-1(g). As officers of HCCA, Furlong and Pietrzak conducted a registration of HCCA’s stock on Form 10-SB and issued periodic reports, press releases and a letter to shareholders, thereby engaging in activities with HCCA for purposes of trading of its stock, or inducing or attempting to induce the purchase or sale of its stock. Therefore, the defendants' violations occurred while they were participating in an offering of penny stock. See In re Charles D. Ledford, Securities Exchange Act Release No. 41941 (September 29, 1999), 1999 SEC LEXIS 2029 (corporate officer barred for involvement in issuer’s false and misleading press releases); In re Lynn K. Ross, Securities Exchange Act Release No. 39041 (September 10, 1997), 65 S.E.C. Docket 0987 (Oct. 7, 1997) (corporate officer barred for involvement in issuer’s false and misleading periodic reports and book and records).
V. OFFICER AND DIRECTOR BARS
As to the officer and director bars sought by the SEC against Furlong and Pietrzak, they contend the bars should be time limited, and that the standard has to be “substantial unfitness” rather than “unfitness.” See Response Brief, pp 8-9. Even if using the “substantial unfitness” standard, the evidence strongly suggests permanent O&D bars are appropriate in this case. Courts generally consider six factors when making a “substantial unfitness” determination: “(1) the ‘egregiousness’ of the underlying securities law violation; (2) the defendant’s ‘repeat offender’ status; (3) the defendant’s ‘role’ or position when he engaged in the fraud; (4) the defendant’s degree of scienter; (5) the defendant’s economic stake in the violation; and (6) the likelihood that misconduct will recur.” E.g., SEC v. Patel, 61 F.3d at 141 (2d Cir. 1995). Courts may consider some of these factors, all of them, or additional factors. Id. at 141.
Analysis of these factors demonstrates that O&D bars against Furlong and Pietrzak are appropriate. Their violations were egregious; they were and remained officers of a public company until at least April 2005; they acted with high degrees of 7
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scienter; they had a large economic stake in their violations (Furlong and Pietrzak raised $3,452,823 and $1,296,720, respectively); and their flagrant violative conduct suggests likelihood of recurrence. Moreover, Furlong is a recidivist who was previously enjoined by the SEC in 1988 and was subjected to cease-and-desist orders by 2 states in 1977 and 2 states in 1994. Bars are needed to prevent Furlong and Pietrzak from ever acting as officers and directors of a public company in the future. As to their self-serving promises at trial that they will never serve as officers or directors of a public company in the future, absent a bar, they can change their minds tomorrow, acquire yet another shell entity, and start the fraud over again. O&D bars are essential in this case to protect the public from these defendants.
VI. CIVIL PENALTIES
As to civil penalties, Furlong and Pietrzak ask that the Court not impose one in this case, because they contend they put more into HCCA than they received from their fraudulent sales of the company’s stock. See Response Brief, p. 10. The statute authorizes the imposition of a civil penalty equivalent to the ill-gotten gains received by the defendant, or in the alternative $110,000 per violation.
The defendants contend that the Court should consider their inability to pay in granting any civil penalty, and cite the case of SEC v. Parks, 222 F. Supp. 2d 1124, 1134 (N.D. Ill 2002), (which has incorrectly cited by the defendants as SEC v. Gorsek). The holding in Parks is that inability to pay may be considered to some extent in the determination to order defendants to pay a civil penalty at a certain amount. The case makes the distinction between the more and less culpable of the defendants, but concludes it appropriate to award civil penalties as to both defendants. However, in this case, the Court should consider two factors. First, Furlong and Pietrzak were both essential parts of the fraudulent scheme. They both signed financial statements of HCCA; both served as officers and directors of HCCA; both interfaced with the internal accounting people on various assets the jury found to be fraudulent; and both profited from their sales of HCCA stock during the period of the fraud. Secondly, the financial statements submitted by Pietrzak and Furlong are of little value as to their true net worth, because they are not executed as true and correct before a notary public who witnessed their swearing, and cannot amount to a proper declaration pursuant to 28 U.S.C. §1746,
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because they were not executed in conformity with the requirements of that statute. Given the testimony of the defendants at trial, which was soundly rejected by the jury with its verdict, this Court should justifiably be circumspect of essentially unsworn, self serving statements of low net worth by two men who are not in bankruptcy, but who otherwise sold voluminous amounts of HCCA stock during the fraud. Their credibility is less than forthcoming, and should be viewed with great skepticism. Moreover, Furlong and Pietrzak have lived for the past decade off funds that were derived not the result of any product they produced or sold. Rather, their funds were derived from the printing and selling of HCCA stock. Given their work histories, health, and relative youth, there is a substantial likelihood that these defendants will again come into money in the future. To that end, the Court should not allow them to avoid a substantial civil penalty today, based upon a claimed inability to pay, where they will likely be able to pay that civil penalty in the future. Courts are frequently comfortable with a one-time civil penalty under the federal securities laws, against each defendant, in an amount equal to the gross amount of pecuniary gain as to that defendant. See SEC v. Interlink Data Network of Los Angeles, Inc. et al., 1993 WL 603274 (C.D. Cal. 1993); Fed. Sec. L. Rep. P 98,049.
RESPECTFULLY SUBMITTED,
/s/Edward G. Sullivan
Edward G. Sullivan
Senior Trial Counsel
/s/William P. Hicks
William P. Hicks
Regional Trial Counsel
COUNSEL FOR PLAINTIFF
SECURITIES AND EXCHANGE COMMISSION
3475 Lenox Road, N.E. Suite 1000
Atlanta, Georgia 30326
(404) 842-7612
9
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CERTIFICATE OF SERVICE
I hereby certify that the foregoing SEC’S REPLY TO THE DEFENDANTS’ RESPONSE TO THE SEC’S MOTION AND BRIEF TO IMPOSE PERMANENT INJUNCTIONS, DISGORGEMENT, PREJUDGMENT INTEREST, CIVIL PENALTIES, OFFICER-DIRECTOR BARS AND PENNY STOCK BARS AGAINST FURLONG AND PIETRZAK, AND TO ENTER FINAL JUDGMENT AGAINST THEM was served by ECF filing with the Court, which automatically notifies counsel, on this 11th day of October, 2007, upon the following:
Keith E. Roberts, Esq.
Robert S. Marcott, Esq.
Roberts & Associates, P.C.
104 East Roosevelt Road, Suite 202
Wheaton, IL 60187
/s/Edward G. Sullivan
Edward G. Sullivan
Senior Trial Counsel
Counsel for Plaintiff
Securities and Exchange Commission
3475 Lenox Road, N.E., Suite 1000
Atlanta, Georgia 30326
(404) 842-7612
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