UNITED STATES OF AMERICA
Securities Exchange Act of 1934
The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest to institute cease-and-desist proceedings against Respondent AutoLend Group, Inc. (AutoLend) pursuant to Section 21C of the Securities Exchange Act of 1934 (Exchange Act).
In anticipation of the institution of these proceedings, AutoLend has submitted an Offer of Settlement (Offer) 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 in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except to the Commission's jurisdiction over it and the subject matter of this proceeding, which are admitted,
AutoLend consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Exchange Act, Making Findings and Imposing a Cease-and Desist Order (Order).
On the basis of the Order and AutoLend's Offer, the Commission makes the following findings:1
ENTITY AND INDIVIDUAL INVOLVED
A. AutoLend is a Delaware Corporation located in Albuquerque, New Mexico. AutoLend's common stock is publicly traded. AutoLend was listed in the Nasdaq Small Capital Market until May 21, 1996 and the Boston Stock Exchange until August 20, 1996. AutoLend is currently listed on the pink sheets.
B. Starting in or about September 1996, Nunzio P. DeSantis (DeSantis) served as AutoLend's president, chief executive officer, a director and chairman of the board. In these positions, DeSantis exercised control over AutoLend's operations and was the company's primary decision maker. DeSantis resigned as a director of AutoLend in May 2000 and resigned as an employee and officer of the company in September 2000.2
THE TENDER OFFER
C. In 1991, AutoLend's predecessor raised approximately $51.4 million through the offer and sale of bonds in a private offering. The bonds had a maturity date of September 1997. Prior to DeSantis taking control of AutoLend in September 1996, interest payments were timely made on the bonds.
D. In September 1996, when DeSantis gained control of AutoLend, the company had approximately $13 million in assets and an outstanding obligation on the bonds of approximately $21 million.
E. At the time DeSantis gained control of AutoLend, it had no operating business and was seeking to acquire an ongoing business. Although AutoLend could make the September 1996 payments on the bonds, DeSantis convinced the board of directors to withhold such payment in order to preserve funds for an acquisition.
F. To further avoid payment on the bonds and preserve funds, on October 22, 1996, AutoLend, through DeSantis, filed with the Commission a Schedule 13E-4, Issuer Tender Offer Statement, in which it proposed to exchange the bonds for a package of AutoLend common and preferred stock. Thereafter, AutoLend filed several amendments to the tender offer in order to extend the expiration date of the offer. The tender offer, as amended, closed on April 8, 1997.
IMPROPER NEGOTIATIONS WITH BONDHOLDERS
G. While the tender offer was pending, AutoLend's executive vice president and treasurer, at DeSantis' direction, contacted bondholders who had not accepted the tender offer to determine at what price, if any, they would be willing to sell their bonds for cash. AutoLend did not disclose in the initial tender offer filing or amendments thereto that it was offering to purchase bonds for cash rather than at the terms set forth in the tender offer.
THE SHAM PURCHASE OF CERTAIN BONDS
H. After the tender offer was initiated, in November 1996, several bondholders (the petitioning bondholders) filed an involuntary bankruptcy proceeding against AutoLend. The petitioning bondholders demanded cash payment on the bonds rather than accept the terms offered in the tender offer to exchange the bonds for common and preferred stock.
I. At or before the time the bankruptcy proceeding was filed, DeSantis had identified a business it wanted AutoLend to acquire. AutoLend intended to use its cash assets to acquire such business.
J. In January 1997, upon learning that AutoLend intended to use its cash to acquire the business identified by DeSantis, the petitioning bondholders filed for and obtained a temporary restraining order in the bankruptcy proceeding prohibiting AutoLend from using its cash to make the acquisition.
K. In order to get the petitioning bondholders to dismiss the bankruptcy proceeding, AutoLend, through DeSantis, contacted an investment banking firm to arrange for a third party to purchase the petitioning bondholders' bonds. AutoLend, however, failed to disclose that the third party was merely a straw man and that the transaction was therefore a sham.
L. In reality, AutoLend, the investment banking firm, and the third party had entered into two undisclosed agreements controlling the purchase and sale of the bondholders' bonds. In the first agreement, AutoLend orally agreed to purchase the bonds from the third party at a premium after the bankruptcy proceeding was dismissed. In the second agreement, AutoLend agreed to maintain a cash position of at least $11 million so that it could ensure its financial ability to purchase the bonds from the third party.
M. AutoLend and DeSantis failed to amend the tender offer filing to disclose the sham transaction described in paragraphs K and L above.
FAILURE TO DISCLOSE RELATED PARTY TRANSACTIONS
N. From October 1996 through January 1997, AutoLend engaged in undisclosed related party transactions.
O. In the fiscal year ended March 1997, AutoLend paid certain personal expenses of DeSantis which exceeded, in January 1997, $60,000. AutoLend failed to disclose these expenses after they exceeded $60,000 for the fiscal year in its annual report (Form 10-K) for the period ended March 31, 1997.
P. In fiscal year ended March 1997, AutoLend also paid certain unrelated business expenses of a company owned by DeSantis which exceeded, in December 1996, $60,000. AutoLend failed to disclose these expenses after they exceeded $60,000 for the fiscal year in its quarterly report (Form 10-Q) for the period ended December 31, 1996 and annual report (Form10-K) for the period ended March 31, 1997.
Q. As a result of the conduct described in paragraphs A. through P. above, AutoLend violated the following provisions of the Exchange Act:
1. AutoLend, in connection with the purchase or sale of the bonds described above, by use of the means or instrumentalities of interstate commerce or of the mails, directly or indirectly, employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading or engaged in acts, practices and courses of business which operated as a fraud or deceit upon purchasers or sellers of the bonds, as more fully described in paragraphs C. through M. above, in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
2. AutoLend, directly or indirectly, made an exchange offer for the bonds described above, and purchased or made arrangements to purchase the bonds otherwise than pursuant to the exchange offer, from the time such exchange offer was publicly announced or otherwise made known to the bondholders until the expiration of the period, including extensions thereof, during which the bonds tendered pursuant to the exchange offer may have by the terms of such offer been accepted or rejected, as more fully described in paragraphs C. through M. above, in violation of Rule 10b-13 of the Exchange Act thereunder.3
3. AutoLend, in connection with a tender offer for the bonds described above, made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or engaged in fraudulent, deceptive, or manipulative acts or practices, as more fully described in paragraphs C. through M. above, in violation of Section 14(e) of the Exchange Act.
4. AutoLend, as the issuer of a security registered pursuant to Section 12 of the Exchange Act, in connection with the tender offer for the bonds described above, purchased such bonds by: employing devices, schemes or artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, misleading; or engaged in acts, practices, or courses of business which operated as a fraud or deceit upon purchasers or sellers of the bonds, as more fully described in paragraphs C. through M. above, in violation of Section 13(e) of the Exchange Act and Rule 13e-4(b) thereunder.4
5. AutoLend, directly and indirectly, failed to file with the Commission, in accordance with such rules and regulations that the Commission has prescribed as necessary or appropriate for the proper protection of investors or to insure the fair dealing in the bonds, AutoLend's annual report on Form 10-K for the year ending March 31, 1997 and AutoLend's quarterly report on Form 10-Q for the fiscal quarter ending December 31, 1996, as more fully described in paragraphs N. through P. above, in violation of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. Specifically, AutoLend failed to comply with item 404 of Regulation S-K (17 C.F.R. §229) which requires the disclosure of any related party transaction or series of transactions that exceed $60,000 during the fiscal year.
In view of the foregoing, the Commission deems it appropriate to impose the sanction set forth in the Offer submitted by AutoLend.
Accordingly, IT IS HEREBY ORDERED that pursuant to Section 21C of the Exchange Act, AutoLend cease and desist from committing or causing any violation and any future violation of Sections 10(b), 13(a), 13(e) and 14(e) of the Exchange Act and Rules 10b-5, 13a-1, 13a-13, 13e-4(j) and 14e-5 thereunder.
By the Commission.
1 The findings herein are not binding on anyone other than AutoLend.
2 Currently, parties unrelated to DeSantis control AutoLend. None of the current officers or directors were involved with AutoLend at the time of the conduct described herein.
3 On October 22, 1999, as part of a comprehensive revision to the rules applicable to takeovers, the Commission redesignated Rule 10b-13 as Rule 14e-5. Rule 14e-5 governs tender offers that are announced after January 24, 2000. Rule 10b-13 governs all cases where the tender offer was announced before January 24, 2000, regardless of when the prohibited activity occurred. This proceeding is against AutoLend under Rule 10b-13 because all of the conduct at issue occurred before January 24, 2000. Although Rule 10b-13 governs the conduct here, the cease-and-desist order will proscribe violations of Rule 14e-5.
4 On October 22, 1999, as part of a comprehensive revision to the rules applicable to takeovers, the Commission redesignated Rule 13e-4(b) as Rule 13e-4(j), effective on January 24, 2000. Although Rule 13e-4(b) governs the conduct here, the cease-and-desist order will proscribe violations of Rule 13e-4(j).