Allen Z. Wolfson, Michael T. Grecco, John M. Black, Jr., Spiro, Lazaretos, Robert Balsamo, Vladimir Carvallo, and Konstantinos Dino Sonitis
Securities Act of 1933
Release No. 8448 / July 20, 2004
Securities Exchange Act of 1934
Release No. 50044 / July 20, 2004
Admin. Proc. File No. 3-10230
In the Matter of Allen Z. Wolfson et al., Respondents. |
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ORDER MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTIONS 15(b)(6) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AS TO MICHAEL T. GRECCO |
I.
On June 14, 2000, the Securities and Exchange Commission ("Commission") entered an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") ("Initial Order") against Respondent Michael Grecco ("Grecco").
II.
Grecco has submitted an Offer of Settlement of Michael Grecco ("Offer") to these administrative proceedings, which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him, the subject matter of these proceedings, and paragraph III.D, which are admitted, Grecco consents to the entry of this Order Making Findings, Imposing Remedial Sanctions, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act and Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
III.
On the basis of this Order and Grecco's Offer, the Commission finds1 that:
A. Grecco operated as an undisclosed promoter of microcap securities. Grecco, age 43, resides in Brooklyn, New York.
B. Grecco participated in the public offering of ATR Industries ("ATR"), Learner's World, Inc. ("Learners"), Rollerball International, Inc. ("Rollerball"), Healthwatch Inc. ("Healthwatch") and Hytk Industries, Inc. ("Hytk") stock, which at all relevant times were penny stocks.
C. Grecco arranged for the payment of bribes to brokers to induce those brokers to cause their retail customers to purchase ATR, Learners, Rollerball, Healthwatch and Hytk stock without disclosing the bribe payments to the retail customers. Grecco received substantial profits for arranging such bribe payments to brokers.
D. On April 9, 2001, Grecco pleaded guilty to one count of conspiracy to commit securities fraud, conspiracy to commit wire fraud, and conspiracy to commit commercial bribery in connection with the bribery scheme concerning Healthwatch, ATR Industries, Rollerball, and Learners stock in U.S. v. Grecco, 100-Cr-628-002 (JGK). Grecco also pleaded guilty to one count of racketeering in connection with a manipulation scheme concerning other stocks in U.S. v. Grecco, 00-Cr.-632.
E. In his plea allocution, Grecco admitted that during 1999 and 2000, while associated with DMN Capital Investments, Inc., he knowingly arranged the payment of bribes to brokers to sell Healthwatch, ATR Industries, Rollerball, Learners and Hytk stock.
F. On January 16, 2002, Grecco was sentenced to 3 years and 10 months in prison and three years of supervised release.
G. Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] prohibits the use of "any manipulative or deceptive device or contrivance," and Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)] and Rule 10b-5 under the Exchange Act [17 C.F.R. § 240.10b-5] prohibit the use of "any device, scheme, or artifice to defraud." One of the "basic aim[s] of the anti-fraud provisions [of the federal securities laws] is to 'prevent rigging of the market and to permit operation of the natural law of supply and demand.'" SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 1466 (2d Cir. 1996) (quoting United States v. Stein, 456 F.2d 844, 850 (2d Cir. 1972)). "This prohibition with respect to manipulative activity is not confined to any particular type of manipulation, but . . . is necessarily designed to outlaw every device 'used to persuade the public that activity in a security is the reflection of a genuine demand instead of a mirage.'" SEC v. Resch-Cassin & Co., Inc., 362 F. Supp. 964, 975 (S.D.N.Y. 1973) (citation omitted).
H. H. Payment of undisclosed compensation to brokers or other securities professionals to tout stocks to others for the purpose of manipulating the public market for those stocks violates the anti-fraud provisions of the federal securities laws. See, e.g., United States v. Blitz, 533 F.2d 1329, 1338 (2d Cir. 1976) (undisclosed fees to brokers for selling stock promoted by payor violates the securities laws); United States v. Koss, 506 F.2d 1103, 1109 (2d Cir. 1974) (undisclosed kickback arrangement between representatives of group seeking to unload shares of manipulated stock and individual touting the stock violate Section 10(b) of the Exchange Act); United States v. Hayutin, 398 F.2d 944, 948-49 (2d Cir. 1968) (arranging for payment of undisclosed kickbacks to brokers held to constitute participation in market manipulation scheme); United States v. Cannistraro, 734 F. Supp. 1110, 1125 (D.N.J. 1990) (paying mutual fund managers to cause mutual funds to purchase stock promoted by payor "aptly characterize[d] as a bribery scheme" that "worked a fraud on shareholders of the Funds in violation of Rule 10b-5").
I. Grecco willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
J. Grecco has submitted a sworn Statement of Financial Condition dated November 12, 2003 and other evidence and has asserted his inability to pay a civil penalty or disgorgement plus prejudgment interest.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Grecco's Offer.
Accordingly, it is hereby ORDERED that:
1. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Grecco cease and desist from committing or causing any violation and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder;
2. Grecco shall pay disgorgement of $45,000 plus prejudgement interest, but payment of such amount is waived based upon Grecco's sworn representations in his Statement of Financial Condition dated November 12, 2003 and other documents submitted to the Commission. Based upon Grecco's sworn representations in his Statement of Financial Condition dated November 12, 2003 and other documents submitted to the Commission, the Commission is not imposing a penalty against Grecco;
3. The Division of Enforcement may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent provided accurate and complete financial information at the time such representations were made; (2) seek an order directing payment of disgorgement and pre-judgment interest; and (3) seek an order directing payment of the maximum civil penalty allowable under the law. No other issue shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate, or incomplete in any material respect. Respondent may not, by way of defense to any such petition: (1) contest the findings in this Order; (2) assert that payment of disgorgement and interest should not be ordered; (3) assert that the payment of a penalty should not be ordered; (4) contest the amount of disgorgement and interest to be ordered; (5) contest the imposition of the maximum penalty allowable under the law; or (5) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense;
4. Pursuant to Section 15(b)(6) of the Exchange Act, Grecco be, and hereby is, barred from association with any broker or dealer.
Any reapplication for association by Grecco will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against Grecco, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.
5. Grecco be, and hereby is, barred from participating in any offering of penny stock, including: acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock; or inducing or attempting to induce the purchase or sale of any penny stock.
By the Commission.
Jonathan G. Katz
Secretary