Replies to post #343819 on Spongetech Delivery Systems, Inc. (fka SPNGQ)

[madeindet]

Litigation Release No. 18787 / July 20, 2004 Court Grants Summary Judgment Against Thomas Cavanagh, Frank Nicolois and Eight Other Defendants and Finds That They Engaged in Pump-and-Dump Scheme

Court Orders Over $18 Million in Disgorgement and $3.3 Million in Penalties

Securities and Exchange Commission v. Thomas Cavanagh, et al., 98 Civ. 1818 (SDNY) (DLC)

On July 15, 2004, U.S. District Judge Denise Cote granted summary judgment in favor of the Commission and against the ten remaining defendants in a civil action arising out of the fraudulent offering and sale of securities of Electro-Optical Systems Corporation. In its order, the court found that Thomas Cavanagh, Frank Nicolois, and their company U.S. Milestone had violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and that Thomas Brooksbank, James Franklin, and Thomas Hantges had violated Securities Act Sections 5(a) and 5(c). The Court also granted summary judgment against relief defendants Karen Cavanagh, Beverly Nicolois, their company Cromlix, LLC, and Edward Kaufer.

In granting the Commission's motion for summary judgment, the court permanently enjoined Cavanagh, Nicolois, and Milestone from violating, directly or indirectly, Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The court permanently enjoined Brooksbank, Franklin, and Hantges from violating, directly or indirectly, Securities Act Sections 5(a) and 5(c).

The court also ordered that Cavanagh, Nicolois, and Milestone pay, jointly and severally, disgorgement of $15,564,863.02 – the total amount of the market fraud – plus interest, less any disgorgement amounts actually paid by other defendants and relief defendants. Cavanagh, Nicolois, and Milestone were also each ordered to pay a civil penalty of $1,000,000. The court ordered Brooksbank, Franklin, and Hantges to pay, jointly and severally, disgorgement of $889,275.00 plus interest. In addition, Brooksbank, Franklin, and Hantges were ordered to individually pay disgorgement of $185,337.79, $50,926.50, and $304,654.29, respectively, plus interest. These three defendants were also each ordered to pay a civil penalty of $125,000. Relief defendants Karen Cavanagh, Beverly Nicolois, and their company Cromlix were ordered to pay, jointly and severally, disgorgement of $803,660.75 plus interest. Relief defendant Edward Kaufer and defendant Brooksbank were ordered to pay, jointly and severally, disgorgement of $213,150.97 plus interest.

The Commission filed this action in March 1998, alleging that certain defendants offered and sold securities of Electro-Optical in violation of the registration and anti-fraud provisions of the securities laws. Brooksbank, Franklin, and Hantges, in concert with now-settled defendant George Chachas, were the principal shareholders of Curbstone, a shell corporation that merged with a private company, WTS Transnational, Inc. ("WTS") in late 1997 to form Electro-Optical. They sold over 2.5 million Curbstone management shares to certain nominee shell companies in Spain and provided the nominees options to acquire additional management shares, which were restricted securities that could not be resold to public investors unless pursuant to registration or an exemption. These shares of Curbstone, which after the company's merger with WTS became shares of Electro-Optical, were soon resold to the public in a massive unregistered distribution in which Cavanagh and Nicolois (together with their now-deceased lawyer William Levy) pumped up the Electro-Optical stock price and pocketed millions of dollars.

Judge Cote issued a preliminary injunction in April 1998, having found that the Commission had shown a substantial likelihood of success in proving that the defendants had violated the registration and antifraud provisions of the securities laws. The injunction was affirmed on appeal. In October 1998, the action was stayed due to the criminal investigation and prosecution of Cavanagh, Nicolois, and Levy for false statements made in connection with this litigation. Since then, approximately forty-five persons or entities have either settled by paying full disgorgement or are in default. The order granting the Commission's motion for summary judgment resolves all outstanding claims.

[madeindet]

These same folks operated as international sales?

The other pleas came from Thomas Cavanagh and Frank Nicolois, identified as international sales employees in an indictment. Both men pleaded guilty to a single structuring charge, meaning they broke down large financial transactions into amounts under $10,000 in order to avoid federal reporting requirements. It isn't clear if Mr. Cavanagh faces prison time, said his lawyer, Jim Sherwood;Mr. Nicolois's lawyer, Paul Batista, didn't immediately return a call.

[madeindet]

SEC Charges 23 Firms With Short Selling Violations in Crackdown on Potential Manipulation in Advance of Stock Offerings



136
FOR IMMEDIATE RELEASE
2013-182
Washington D.C., Sept. 17, 2013 — The Securities and Exchange Commission today announced enforcement actions against 23 firms for short selling violations as the agency increases its focus on preventing firms from improperly participating in public stock offerings after selling short those same stocks. Such violations typically result in illicit profits for the firms.
The enforcement actions are being settled by 22 of the 23 firms charged, resulting in more than $14.4 million in monetary sanctions.

The SEC’s Rule 105 of Regulation M prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering. The rule applies regardless of the trader’s intent, and promotes offering prices that are set by natural forces of supply and demand rather than manipulative activity. The rule therefore helps prevent short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering.

The firms charged in these cases allegedly bought offered shares from an underwriter, broker, or dealer participating in a follow-on public offering after having sold short the same security during the restricted period.

“The benchmark of an effective enforcement program is zero tolerance for any securities law violations, including violations that do not require manipulative intent,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “Through this new program of streamlined investigations and resolutions of Rule 105 violations, we are sending the clear message that firms must pay the price for violations while also conserving agency resources.”

The SEC’s National Examination Program simultaneously has issued a risk alert to highlight risks to firms from non-compliance with Rule 105. The risk alert highlights observations by SEC examiners focusing on Rule 105 compliance issues as well as corrective actions that some firms proactively have taken to remedy Rule 105 concerns.

“This coordination between the enforcement and examination programs reaffirms that market participants must be in compliance with Rule 105 to preserve and protect the independent pricing mechanisms of the securities markets,” said Andrew Bowden, Director of the SEC’s National Exam Program.

In a litigated administrative proceeding against G-2 Trading LLC, the SEC’s Division of Enforcement is alleging that the firm violated Rule 105 in connection with transactions in the securities of three companies, resulting in profits of more than $13,000. The Enforcement Division is seeking full disgorgement of the trading profits, prejudgment interest, penalties, and other relief as appropriate and in the public interest.

The SEC charged the following firms in this series of settled enforcement actions:

Blackthorn Investment Group – Agreed to pay disgorgement of $244,378.24, prejudgment interest of $15,829.74, and a penalty of $260,000.00.
Claritas Investments Ltd. – Agreed to pay disgorgement of $73,883.00, prejudgment interest of $5,936.67, and a penalty of $65,000.00.
Credentia Group – Agreed to pay disgorgement of $4,091.00, prejudgment interest of $113.38, and a penalty of $65,000.00.
D.E. Shaw & Co. – Agreed to pay disgorgement of $447,794.00, prejudgment interest of $18,192.37, and a penalty of $201,506.00.
Deerfield Management Company – Agreed to pay disgorgement of $1,273,707.00, prejudgment interest of $19,035.00, and a penalty of $609,482.00.
Hudson Bay Capital Management – Agreed to pay disgorgement of $665,674.96, prejudgment interest of $11,661.31, and a penalty of $272,118.00.
JGP Global Gestão de Recursos – Agreed to pay disgorgement of $2,537,114.00, prejudgment interest of $129,310.00, and a penalty of $514,000.00.
M.S. Junior, Swiss Capital Holdings, and Michael A. Stango – Agreed to collectively pay disgorgement of $247,039.00, prejudgment interest of $15,565.77, and a penalty of $165,332.00.
Manikay Partners – Agreed to pay disgorgement of $1,657,000.00, prejudgment interest of $214,841.31, and a penalty of $679,950.00.
Meru Capital Group – Agreed to pay disgorgement of $262,616.00, prejudgment interest of $4,600.51, and a penalty of $131,296.98.00.
Merus Capital Partners – Agreed to pay disgorgement of $8,402.00, prejudgment interest of $63.65, and a penalty of $65,000.00.
Ontario Teachers’ Pension Plan Board – Agreed to pay disgorgement of $144,898.00, prejudgment interest of $11,642.90, and a penalty of $68,295.
Pan Capital AB – Agreed to pay disgorgement of $424,593.00, prejudgment interest of $17,249.80, and a penalty of $220,655.00.
PEAK6 Capital Management – Agreed to pay disgorgement of $58,321.00, prejudgment interest of $8,896.89, and a penalty of $65,000.00.
Philadelphia Financial Management of San Francisco – Agreed to pay disgorgement of $137,524.38, prejudgment interest of $16,919.26, and a penalty of $65,000.00.
Polo Capital International Gestão de Recursos a/k/a Polo Capital Management – Agreed to pay disgorgement of $191,833.00, prejudgment interest of $14,887.51, and a penalty of $76,000.00.
Soundpost Partners – Agreed to pay disgorgement of $45,135.00, prejudgment interest of $3,180.85, and a penalty of $65,000.00.
Southpoint Capital Advisors – Agreed to pay disgorgement of $346,568.00, prejudgment interest of $17,695.76, and a penalty of $170,494.00.
Talkot Capital – Agreed to pay disgorgement of $17,640.00, prejudgment interest of $1,897.68, and a penalty of $65,000.00.
Vollero Beach Capital Partners – Agreed to pay disgorgement of $594,292, prejudgment interest of $55.171, and a penalty of $214,964.
War Chest Capital Partners – Agreed to pay disgorgement of $187,036.17, prejudgment interest of $10,533.18, and a penalty of $130,000.00.
Western Standard – Agreed to pay disgorgement of $44,980.30, prejudgment interest of $1,827.40, and a penalty of $65,000.00.
The SEC’s investigations were conducted by Conway T. Dodge, Anita B. Bandy, Lauren B. Poper, Christina M. Adams, Allen A. Flood, Kevin J. Gershfeld, Wendy Kong, Mary S. Brady, Ian S. Karpel, Kimberly L. Frederick, and J. Lee Robinson. The SEC’s litigation will be led by James A. Kidney. The SEC appreciates the ongoing assistance of the Financial Industry Regulatory Authority.