UNITED STATES OF AMERICA
|In the Matter of
US DIAGNOSTIC INC. and
|ORDER INSTITUTING PUBLIC
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
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted with respect to Jeffrey Goffman ("Goffman") and US Diagnostic Inc. ("USDL" or the "Company") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of the institution of these administrative proceedings, Goffman and USDL have submitted Offers of Settlement ("Offers") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, without admitting or denying the findings as set forth below, except as to jurisdiction of the Commission over them and over the subject matter of these proceedings, which Goffman and USDL admit, Goffman and USDL consent to the entry of this Order Instituting Public Administrative 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 ("Order") set forth below.
The Commission makes the following findings:1
A. Respondents and a Related Individual
Jeffrey A. Goffman, age 42, was a founder, Chairman, Chief Executive Officer and a director of USDL. Goffman owned about 78% of the stock of USDL at its inception. On February 3, 1997, he was placed on administrative leave and on March 25, 1997, he resigned, as a result of the facts described below. He currently is employed as Vice-Chairman of U.S. Cancer Care, Inc., a privately held corporation.
US Diagnostic Inc. is a Delaware corporation headquartered in West Palm Beach, Florida. At the time of the events described herein, it was the largest operator of outpatient diagnostic imaging centers in the country, with over 120 facilities in eighteen states. Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and, at the time of the events discussed herein, was traded on the NASDAQ National Market System. USDL filed a Registration Statement on Form SB-2 with the Commission for an initial public offering, which became effective in October 1994.
2. Related Individual
Keith G. Greenberg, age 42, co-founded USDL. He functioned as a de facto officer of USDL while nominally employed by a consulting company owned by his family, until January 1997, when USDL terminated its relationship with him and the consulting company as a result of the facts described below.
During the period 1995 through mid-1996 ("the relevant period"), USDL's public statements and filings with the Commission omitted material information concerning Keith G. Greenberg. Specifically, they did not disclose that Greenberg served as a de facto officer of the Company, pleaded guilty in a criminal proceeding and was enjoined from violating the antifraud provisions of the federal securities laws in a prior Commission enforcement action. Greenberg operated as an officer, was represented as an officer in certain documents disseminated to the press and investors, and held himself out as an officer. Yet in USDL's filings with the Commission, Greenberg was either not identified at all or was identified merely as an employee of a consulting firm retained by the Company to assist with acquisitions. Accordingly, USDL's public statements and filings with the Commission were materially false and misleading. Goffman knew of Greenberg's legal history, his duties and responsibilities at the Company, and his having held himself out as an officer of the Company. Goffman thereafter authorized filings with the Commission and public statements which mischaracterized Greenberg's role at the Company and failed to disclose his legal history, thus causing USDL's violations.
C. Prior Proceedings Against Greenberg
On June 1, 1993, the Commission filed a Complaint against Greenberg alleging that as the president of a public company he founded, he aided and abetted violations of the antifraud provisions of the federal securities laws.2 Greenberg, without admitting or denying the allegations in the Complaint, consented to the entry, on June 8, 1993, of a permanent injunction enjoining him from future violations of the antifraud provisions.
On September 13, 1994, Greenberg pleaded guilty to one felony count of conspiracy to commit mail fraud and to defraud the Internal Revenue Service and one felony count of conspiracy to commit mail fraud.3 He was sentenced on August 29, 1995, to thirty days imprisonment, two years supervised release, and 300 hours of community service.
D. Goffman and USDL Were Aware That Greenberg Functioned and Represented Himself as an Officer of the Company
From at least September 1995 through October 1996, Greenberg held himself out as an officer of USDL in negotiations with diagnostic centers USDL was seeking to acquire. As the CEO and Chairman, Goffman allowed Greenberg to conduct wide-ranging aspects of the Company's business, including acquisitions strategy, public and media relations, and personnel matters. He also allowed Greenberg to serve on the Company's executive committee. Goffman was aware that Greenberg referred to himself as Executive Vice President of USDL and Director of Marketing, Mergers and Acquisitions, and he saw numerous letters of intent sent to third parties that were signed by Greenberg in that capacity.4 Furthermore, Goffman saw business cards, correspondence on USDL letterhead, and various news articles that described Greenberg as Executive Vice President.
In several communications with investors prepared by or at the direction of Greenberg, USDL identified Greenberg as an officer or the equivalent but did not disclose his prior legal problems. For example, throughout 1995 and early 1996, USDL disseminated an "executive summary," as part of a promotional kit for investors and the press, which described Greenberg as a co-founder and a consultant since the Company's inception who "became full time Executive Vice President in December, 1994." In addition, in its 1995 Annual Report to Shareholders, USDL identified Greenberg as a co-founder of USDL and "Director of Marketing, Mergers and Acquisitions." Both of these communications purported to describe his relevant history and background, yet did not disclose his criminal conviction or civil injunction. Greenberg also was represented to the press as "executive vice-president" and was identified as such in newspaper and magazine articles.
On several occasions, Goffman admonished Greenberg that he had exceeded his authority and was acting beyond the scope of duties prescribed by USDL and its counsel. Despite these admonitions, Greenberg continued to act and hold himself out as an officer of the Company, a fact that Goffman knew or should have known.
E. Goffman Caused USDL To Fail To Disclose Greenberg's De Facto Officer Role and Past Legal Problems
From December 1994 through mid-1996, USDL's filings with the Commission failed to identify Greenberg as an officer and failed to disclose his past legal problems. 5 Goffman was a cause of these disclosure failures. As a result, USDL failed to make such disclosures in its filings with the Commission. In USDL's 1994 Form 10-KSB, June 1995 Proxy Statement on Form 14-A, and June 1995 Registration Statement on Form SB-2, there was a brief description of the consulting agreement, but no reference whatsoever to Greenberg. In its 1995 Form 10-KSB and June 1996 Registration Statement on Form S-3, USDL expanded its description of the services provided by the consulting firm and identified Greenberg and his wife as the persons who were providing those services. However, Greenberg's criminal and employment history were not disclosed. Goffman signed each of the filings.
Item 401 of Regulation S-B requires companies to disclose (i) the names, ages, positions, and business experience during the past five years of its officers and directors; and (ii) certain legal proceedings during the past five years that are "material to an evaluation of the ability and integrity" of such persons including a conviction in a criminal proceeding.6
Section 17(a)(2) and (a)(3) of the Securities Act prohibits the making of false and misleading statements or omissions in connection with the offer or sale of securities or engaging in transactions which operate as a fraud or deceit on the purchasers of securities. Violations of Section 17(a)(2) and (a)(3) of the Securities Act do not require proof of scienter. See Aaron v. SEC, 446 U.S. 680, 701-02 (1980).
USDL failed to disclose that Greenberg was a de facto officer, a convicted felon, and an enjoined securities law violator. Goffman caused USDL's violations by signing misleading filings with the Commission and materially deficient materials distributed to shareholders and the public when he knew or should have known that the disclosures were incomplete and misleading.
Section 14(a) of the Exchange Act and Rule 14a-9 thereunder proscribe the use of proxy statements containing "any statement which at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make the statements therein not false or misleading . . . ." See TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 441 (1976). Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file periodic reports with the Commission. Such reports must be accurate. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). Exchange Act Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading. See SEC v. Flagstaff Brewing Corp., 629 F.2d 62, 70 (D.C. Cir. 1980). Moreover, Item 401 of Regulation S-B requires the disclosure of criminal convictions and civil injunctions arising from violations of the federal securities laws of officers and directors for the past five years.
As described above, USDL filed a false and misleading proxy statement, annual reports, and registration statements with the Commission that failed to disclose Greenberg's role as an officer of USDL and failed to disclose Greenberg's past legal problems. The evidence shows that Greenberg discharged the duties of an officer of USDL, making him a de facto officer. See Philippine Airlines, Inc. v. City Trust Bank, No. 96-1667, 1997 U.S. App. LEXIS 27182, at * 2 (9th Cir. Oct 1, 1997) (finding that where annual report listed defendant as a director, defendant signed several letters as a director, and defendant discharged duties of a director, defendant was a de facto director despite the fact that she did not consider herself a director). Thus, USDL cannot avoid liability by characterizing Greenberg as a "consultant" while allowing him to function as an officer. See, e.g., CRA Realty Corp. v. Crotty, 878 F.2d 562, 563 (2d Cir. 1989) (finding that employee's functions, rather than title, determine whether he is an officer within the meaning of Exchange Act Section 16(b)). The Company also disseminated to shareholders and the public various communications during 1995 and 1996 which purported to describe Greenberg's relevant background and experience but which failed to disclose his criminal conviction and civil injunction. For the foregoing reasons, USDL violated Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder, as well as Section 17(a)(2) and (a)(3) of the Securities Act. Goffman violated Section 17(a)(2) and (a)(3) of the Securities Act and was a cause of USDL's violations of Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder by signing misleading filings with the Commission and materially deficient materials distributed to shareholders and the public.
Based on the foregoing, the Commission finds that USDL committed violations of Section 17(a)(2) and (a)(3) of the Securities Act, Sections 13(a) and 14(a) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder, and that Goffman commited violations of Section 17(a)(2) and (a)(3) of the Securities Act and was a cause of violations of Sections 13(a) and 14(a) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.
Based on the foregoing, the Commission deems it appropriate to accept the Offers submitted by the Respondents and accordingly,
IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that USDL cease and desist from committing or causing any violation and any future violation of Section 17(a)(2) and (a)(3) of the Securities Act and Sections 13(a) and 14(a) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder, and that Goffman cease and desist from committing or causing any violation and any future violation of Section 17(a)(2) and (a)(3) of the Securities Act and from causing any violation and any future violation of Sections 13(a) and 14(a) of the Exchange Act, and Rules 12b-20, 13a-1,13a-13, and 14a-9 thereunder.
By the Commission.
Jonathan G. Katz
|1||The Commission's findings herein are made pursuant to Goffman's Offer of Settlement and USDL's Offer of Settlement and are not binding upon any other person or entity in these or in any other proceedings.|
|2||See SEC v. Leonard J. Messina, Keith G. Greenberg et al., 93 Civ. 3650 (PNL) (S.D.N.Y. filed June 1, 1993); Litig. Release No. 13920 (Dec. 30, 1993).|
|3||According to the criminal information: (a) Greenberg and his co-conspirators siphoned a portion of the offering proceeds of Amtech, the public company he founded, to make secret payments to a promoter, used offering proceeds to pay brokers' commissions in excess of those disclosed in the offering memoranda, and inflated acquisition costs to generate additional funds to make these secret payments; and (b) Greenberg, while a principal at Morgan Cromwell, Ltd., a small investment banking firm he helped to found, made approximately $101,000 in undisclosed "under the table" cash payments to brokers for selling stock held in nominee accounts.|
|4||Greenberg did not sign any final purchase contracts for any of the transactions underlying these letters of intent. Those purchase contracts were signed by others at USDL.|
|5||The false public filings during the relevant period and the dates they were filed with the Commission are as follows:
|6||Item 9 of Form 10-KSB and Item 10 on Form SB-2 require the information required by Item 401 of Regulation S-B.|
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