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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 50151 / August 5, 2004

Admin. Proc. File No. 3-11537


In the Matter of

Richard S. Kern, Donald R. Kern, and Charles Wilkins



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ORDER MAKING FINDINGS AND IMPOSING SANCTION BY DEFAULT

The Securities and Exchange Commission (Commission) issued its Order Instituting Proceedings (OIP) on July 7, 2004, pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act). The Office of the Secretary has provided evidence that Respondents Richard S. Kern (R. Kern), Donald R. Kern (D. Kern), and Charles Wilkins (Wilkins) received the OIP on July 13, 2004.

Under the terms of the OIP and Rule 220 of the Commission's Rules of Practice, Respondents' Answers were due no later than August 2, 2004. No Answers have been filed. Respondents are therefore in default. As authorized by Rule 155(a) of the Commission's Rules of Practice, I find the following allegations of the OIP to be true:

R. Kern, age 49, resides in Fort Lauderdale, Florida. He has been involved in several small business ventures with D. Kern, Wilkins, and others. D. Kern, age 51, also resides in Fort Lauderdale and is the brother of R. Kern. He retired from the United States Air Force in June 1995 and since then has assisted R. Kern in their joint business ventures.

Wilkins, age 68, resides in Arizona. Wilkins has claimed to receive income from securities transactions through his small, closely-held corporations. Wilkins also was in the business of assisting small corporations and shell corporations in becoming listed on the NASD's OTC Bulletin Board system.

On February 24, 2000, the Commission filed a civil injunctive action in the United States District Court for the Southern District of New York against the Kerns, Wilkins, and others. In its complaint, the Commission alleged that the Kerns and Wilkins violated Section 5 of the Securities Act of 1933 (Securities Act), Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. As part of its action, the Commission requested an asset freeze, an accounting, disgorgement, prejudgment interest, and civil penalties.

The Commission's complaint alleged that, from April 1998 through January 1999, Respondents succeeded in listing the securities of three shell corporations on the NASD's OTC Bulletin Board for the specific purpose of attempting to merge the shell corporations with other corporations. According to the complaint, Respondents prepared to sell stock of the shell corporations by distributing the corporations' stock to family and friends, who held the securities for two years before the public listings of the shell corporations, and then re-gathered the stock from their family and friends. Using accounts in the names of certain entities owned or controlled by them, Respondents effected public sales of the securities of the shell corporations to entities owned or controlled by Respondents' co-defendant, Peter C. Lybrand (Lybrand), without registering their transactions with the Commission. The complaint further alleges that Respondents aided and abetted a market manipulation by Lybrand in that they engaged in matched orders whereby they determined the amount, price, and timing of their sell orders in consultation with Lybrand. Respondents also transferred to Lybrand millions of shares of the shell corporations' securities through the corporations' transfer agent, without registering their transactions with the Commission. Finally, in January 1999, Respondents sold into the public market thousands of shares of the shell corporations without registering their transactions with the Commission. Respondents participated in offerings of the stock of the shell corporations, which were penny stocks. In all, Respondents realized profits of $5,972,525 as a result of their sales of the shell corporations' securities.

On October 6, 2003, the district court entered a final judgment against the Kerns and Wilkins. The court permanently enjoined them from violating Sections 5(a) and 5(c) of the Securities Act and ordered them, jointly and severally, to pay disgorgement and prejudgment interest of $7,765,173. The court also ordered R. Kern to pay a civil penalty of $400,000, D. Kern to pay a civil penalty of $400,000, and Wilkins to pay a civil penalty of $300,000.

On June 28, 2004, the district court entered final judgments of consent against the Kerns and Wilkins on the third claim of the Commission's complaint. The court permanently enjoined them from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

In view of the above, I find that remedial action is appropriate in the public interest, and that R. Kern, D. Kern, and Wilkins should be barred from participating in any offering of penny stock.

IT IS ORDERED THAT, pursuant to Section 15(b) of the Securities Exchange Act of 1934, Richard S. Kern, Donald R. Kern, and Charles Wilkins are each barred from participating in any offering of penny stock.

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James T. Kelly
Administrative Law Judge

See also the Order in this matter


http://www.sec.gov/litigation/admin/34-50151.htm


Modified: 08/05/2004