UNITED STATES OF AMERICA
In the Matter of
LEE E. GAHR
|ORDER ENTERING DEFAULT, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTION AGAINST RESPONDENT LEE E. GAHR|
The Securities and Exchange Commission (Commission) issued its Order Instituting Proceedings (OIP) on December 7, 2001. The OIP alleges that a federal district court issued a default judgment permanently enjoining Respondent from violating the antifraud provisions of the securities laws. The issue to be determined in this proceeding is whether a penny stock bar against Respondent is appropriate in the public interest.
Respondent was served with the OIP on January 3, 2002, and Respondent's counsel, Charles R. McCarthy, Jr., Esq., entered his appearance for Respondent by letter dated January 14, 2002. Mr. McCarthy requested a lengthy extension of time to file Respondent's answer to the OIP, citing his unfamiliarity with the issues and his and Respondent's preexisting travel commitments. The Division of Enforcement (Division) did not oppose the relief sought, and I enlarged the time to file Respondent's answer until March 25, 2002. Respondent's answer was not filed on March 25, 2002, in accordance with Rule 220 of the Commission's Rules of Practice. See 17 C.F.R. § 201.220.
On March 29, 2002, the Division filed a Motion for Default Judgment, Or In The Alternative, For Leave To File Motion For Summary Disposition, and Motion for Summary Disposition (Motion). The Division requests that I deem the allegations set forth in the OIP to be true and that I impose a penny stock bar against Respondent.
On April 9, 2002, Respondent opposed the Division's Motion. In essence, Respondent asserts that he might file a motion with the federal district court "within the next several weeks" to set aside the default judgment of permanent injunction; that if he prevails on such a motion in federal district court, it would moot the present action; and that further delay in this proceeding will not prejudice the Division.
The Division argues that if Respondent is successful in vacating the district court's final order, he can petition to vacate an administrative default pursuant to Rule 155(b) of the Commission's Rules of Practice, 17 C.F.R. § 201.155(b). I agree with the Division, and I grant its motion for a default judgment. The Division also argues that postponing relief in this proceeding would reward Respondent for dilatory tactics and create a risk of further harm to investors. I do not necessarily agree with the Division's use of the term "dilatory." However, I see no reason why the investing public, as opposed to Respondent himself, should bear the risk of his continued participation in penny stock offerings while the contemplated district court proceeding remains pending.
As provided by Rules 155(a)(2) and 220(f) of the Commission's Rules of Practice, 17 C.F.R. §§ 201.155(a)(2), .220(f), Respondent is in default because he has failed to answer the OIP within the time allowed. Good cause has not been established for an indefinite postponement.
Accordingly, I find that the allegations in the OIP are true:
On August 22, 2001, the United States District Court for the District of Nevada entered a final judgment permanently enjoining Respondent from violating 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 rule 10b-5 thereunder. The court ordered Respondent to pay disgorgement of $246,409, plus prejudgment interest of $15,192, and a civil penalty of $246,409. See SEC v. Gahr, No. CV-S-00-1088-KJD-RJJ (D. Nev. 2001).
The injunctive action focused on the Commission's allegations that, from approximately September 1998 to May 2000, Respondent promoted, offered, and sold the common stock of Chill Tech Industries, Inc. (Chill Tech), which was a penny stock.
The injunction was also based on the Commission's allegations that Respondent made numerous false and misleading statements through press releases and other media from September 1998 through May 2000. These statements concerned Chill Tech's product, purportedly a self-cooling beverage can; business relationships with third parties; financial and stock price projections; future Nasdaq listing; and financing commitments and agreements to acquire substantial assets. Certain of these statements caused the price and volume of Chill Tech stock to increase significantly in the short term. While Respondent was disseminating the false press releases, he personally sold 1,056,500 shares of Chill Tech common stock for profits totaling $246,409.
In view of the foregoing, and pursuant to Section 15(b)(6) the Exchange Act, I find it in the public interest and for the protection of investors to bar Respondent from participating in any offering of penny stock.
Accordingly, I GRANT the Division's Motion and I ORDER that Respondent Lee E. Gahr is barred from participating in any offering of penny stock.
The telephonic prehearing conference scheduled for April 12, 2002, is cancelled.
James T. Kelly
Administrative Law Judge
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