More On e-Smart & Case Law Research.
Credit goes to 4C's. Absolutely excellent DD. This would make excellent reference for our counsel in the case law cited in the e-Smart ruling. Bo
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e-Smart ruling: what Judge Brenda knows!
« Thread started on: Apr 12th, 2005, 11:11pm »
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Since Judge Brenda has referenced e-Smart Technologies as a precedent for our current situation, I thought I’d compile a chronicle of what happened to e-Smart so we’d have a road map of what may be in store for us. Administrative law Judge Lillian McEwen presided over the e-Smart proceedings. Here goes:
12/13/02 - SEC suspends trading of e-Smart (ESMT) and asks for hearing.
12/16/02 - Just three days later, proceedings are instituted against e-Smart based on two violations: (1) materially false and misleading statements made directly to investors and potential investors concerning results of operations, contractual relationships, ownership of technology assets, and projected revenues and profits; and (2) materially false and misleading reports filed with the SEC as a result of registration requirements. Much of this content paralleled a fraud case being brought against e-Smart in Federal court in the Southern District of New York.
12/9/03 - After nearly a year goes by, the Order is modified because the Federal court found the fraud charges baseless, so a fraud finding is not required anymore.
3/4/04 - The Judge’s initial decision is rendered. She references Steadman vs. SEC as representative of the preponderance of evidence, but finds e-Smart’s violations were recurrent and egregious, and she revokes e-Smart’s registration.
7/16/04 - An Order on motions is made in which the SEC’s request for a summary affirmation of the previous Order is denied. e-Smart gets a chance to present their case for reduced sanctions.
10/14/04 - The Judge’s original decision to revoke is remanded to her for further consideration since e-Smart has filed all delinquent reports and seems capable of meeting filing deadlines in the future.
2/3/05 - In her initial decision release, the Judge concludes that no sanctions need be imposed as e-Smart has complied with all filing requirements and shows intent to continue to do so. She denies the SEC’s motion to continue revocation with the quote shown below which I believe is the touchstone for our hearing.
3/5/05 - No petition for review is received from the SEC, so the Judge’s initial decision release becomes final: no sanctions are imposed on e-Smart.
Here’s the language the judge used in deciding that revocation was uncalled for, and if this doesn’t sum up our situation, I don’t know what does (and our violations, although recurrent, are certainly not egregious as were e-Smart's):
“In view of the foregoing, despite the egregiousness and recurrent nature of e-Smart's violations, I find the likelihood of future violations absent and the need for a strong sanction no longer necessary. The Division's request for revocation of the registration of e-Smart's common stock must therefore be denied. See 4 Louis Loss & Joel Seligman, Securities Regulation 1891-92 (3d ed., rev. vol. 2000) (describing involuntary revocation of a security's registration as a draconian remedy and unnecessarily harmful to innocent security holders in view of the availability of other regulatory tools that ensure the filing of adequate reports); 3 Thomas L. Hazen, Treatise on the Law of Securities Regulation § 9.2[1] (4th ed 2002). I also conclude that suspension of e-Smart's registration of its common stock (a remedy not pursued by the Division, but available) is equally inappropriate. The effect of any suspension, as with revocation, would be to harm investors unfairly, rather than to serve any deterrent or remedial function now that the company has filed, albeit untimely, all its delinquent reports. Both remedies, in light of e-Smart's later compliance efforts, would also deprive investors unnecessarily of a public market for the trading of their securities. See Loss & Seligman at 1897 (citing legislative history for Exchange Act Section 15(c)(4), a parallel provision to Section 12(j) for persons who cause a company's violations of the reporting requirements).
Having reconsidered the Steadman factors in light of e-Smart's subsequent filings and recent compliance, I deny the Division's renewed request for revocation of the registration of e-Smart's common stock and conclude, under the circumstances, that no sanction should be imposed for e-Smart's violations.”
I love that phrase "describing involuntary revocation of a security's registration as a draconian remedy and unnecessarily harmful to innocent security holders", don't you? A perfect description of our feelings, I'd say.
Now, I don't think we're in for a two-year bout like e-Smart went through because there is no parallel Federal court case to muddy the water for us. Absent that distraction, Judge Brenda could come to a decision in a week or two unless there's some factor we're not aware of that the SEC springs in the conference call tomorrow.
If Judge Brenda agrees with judge Lillian’s decision (and I think she will), we should come out of this with minor embarassment and no impediments to further trading on the Pinks (or higher, once we qualify). Let’s hope so.
