UNITED STATES OF AMERICA
|In the Matter of
|ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT
TO SECTION 8A OF THE SECURITIES
ACT OF 1933 AND SECTION 21C OF
THE SECURITIES EXCHANGE ACT OF
1934, MAKING FINDINGS AND IMPOSING
IMPOSING A CEASE-AND-DESIST ORDER
The Commission deems it appropriate to institute public administrative proceedings pursuant to Section 8A of the Securities Act of 1933 (the "Securities Act") and Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") to determine whether Victor Caron (the "Respondent") was a cause of violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement which the Commission has determined to accept. Solely for purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, Respondent, without admitting or denying the matters set forth herein, consents to the issuance of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("the Order"), and to the entry of the findings, and the cease-and-desist order, set forth below.
The Commission finds the following:
Victor Caron resides in New York and, during the relevant period, was President and a director of Blue Chip Computerware, Inc.
2. Blue Chip Computerware, Inc.
During the relevant period, Blue Chip Computerware, Inc. was a New York company that held itself out as a diversified technology and consumer products company. Its common stock traded on the Nasdaq SmallCap Market. Blue Chip ceased operations on December 26, 1996.
3. Related Civil Action Against Other Culpable Parties
On September 17, 1997, the Commission filed a civil enforcement action in the United States District Court for the Southern District of California charging six individuals (the "Fraud Defendants") with engaging in a fraudulent stock leasing scheme. The Commission's complaint alleged, in essence, that the Fraud Defendants obtained worthless stock certificates from a number of small public companies, including Blue Chip Computerware, and then used those certificates to fraudulently obtain property, money, or credit from unwitting third parties. To effectuate their scheme, the Fraud Defendants entered into substantially similar "subscription" or "asset contribution" agreements with each of the public companies. The agreements typically committed the public company to provide the Fraud Defendants with stock certificates purporting to represent millions of shares of the company's common stock in exchange for large monthly or up-front payments to the company and a promise that the Fraud Defendants would tender full payment for the shares a year later.
The terms of the agreements placed so many restrictions on the stock that the certificates had no economic value if legitimately held in accordance with the agreements. For example, the agreements purported to prohibit the Fraud Defendants from voting the shares or from selling, transferring, or otherwise disposing of the stock in any way. Moreover, although the agreements purported to give the Fraud Defendants an option to buy the stock after a year by tendering full payment of principal, the agreements typically allowed the issuer to reject the Fraud Defendants' tender, take back the shares, and keep all of the monthly payments made during the one-year lease period. The agreements also typically provided that the stock certificates would bear only a boilerplate Regulation S legend, thus providing no notice to third parties of the severe additional restrictions imposed by the agreements.
4. Respondent's Involvement and the Consequences
In July 1993, Respondent Victor Caron, acting on behalf of Blue Chip, executed an agreement by which Blue Chip provided certain of the Fraud Defendants with 6.2 million shares of its stock (approximately three times the number of shares it then had outstanding) in exchange for the promise of 12 monthly payments of approximately $33,000 each.
Upon receipt of the Blue Chip stock, the Fraud Defendants subleased it to a Cayman Islands insurance company which then used it to shore up its balance sheet in an application to Texas insurance regulators -- which ultimately was rejected -- requesting permission to increase the limits on how much insurance it could sell. Blue Chip received a total of $53,000 in payments from the Fraud Defendants for the use of its stock.1
B. LEGAL DISCUSSION
Securities Act Section 8A and Exchange Act Section 21C both authorize the Commission, upon finding that any person has violated any provision of either act or the rules and regulations thereunder, to issue an order requiring "any person that is, was, or would be a cause of the violation, due to an act or omission the person knew or should have known would contribute to such violation, to cease and desist from committing or causing such violation and any future violation of the same provision, rule or regulation."
Respondent allowed millions of shares of Blue Chip Computerware stock to enter the stream of commerce without adequate legends or other safeguards to put third parties on notice of the contractual encumbrances that rendered the stock economically valueless for any legitimate purpose. By providing Blue Chip Computerware securities to the Fraud Defendants in this manner, Respondent disregarded the likelihood that the securities would be used for illicit purposes. Accordingly, Respondent was a cause of the Fraud Defendants' violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
Based on the above, the Commission finds that Respondent Victor Caron was a cause of violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
Accordingly, IT IS HEREBY ORDERED, pursuant to Securities Act Section 8A and Exchange Act Section 21C, that Respondent Victor Caron cease and desist from causing any violation and any future violation of Securities Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5.
By the Commission.
Jonathan G. Katz
|1||After the lease payments ceased in September 1993, Blue Chip requested the return of the stock certificates. In January 1994, the certificates were returned to Blue Chip and taken out of circulation.|
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