U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20388 / December 7, 2007
SEC v. Competitive Technologies, Inc. , et. al., Civil Action No. 304 CV 1331 JCH (District of Connecticut)
Jury Trial Results in Verdict Against SEC Defendant. SEC to Retry Case Against Two Others
The Securities and Exchange Commission announced today that on November 29, 2007, a federal jury returned a verdict in the SEC's favor on all securities fraud charges against former registered representative Sheldon A. Strauss of Cleveland, Ohio, a defendant in a previously-filed civil injunctive action involving a multi-faceted scheme to manipulate the stock price of Competitive Technologies, Inc., ("CTT"), a technology development company located in Fairfield, Connecticut. In addition, the jury was unable to reach verdicts on most of the charges against two remaining defendants: Richard A. Kwak, a registered representative formerly associated with a broker-dealer in San Diego, CA and Stephen J. Wilson, a registered representative formerly associated with a broker-dealer in Media, PA. Yesterday, the SEC informed the Court that it will retry its case against Kwak and Wilson at a future date. The verdict against Strauss followed a three-week trial in Bridgeport, Connecticut before the Honorable Janet Hall, United States District Court Judge for the District of Connecticut.
The Commission's complaint, filed against a total of eight defendants on August 11, 2004, alleged that the defendants participated in a scheme to manipulate and inflate the price of CTT stock from at least July 1998 to June 2001. The complaint alleged that the defendants artificially raised and maintained the price of CTT's stock and created a false or misleading appearance with respect to the market for CTT stock through manipulative practices such as placing buy orders at or near the close of the market in order to inflate the reported closing price ("marking the close"), placing successive buy orders in small amounts at increasing prices ("painting the tape"), and using accounts they controlled or serviced to place pre-arranged buy and sell orders in virtually identical amounts (placing "matched trades").
The SEC also announced that on October 26, 2007 and on October 31, 2007, the Court in this case entered final judgments by consent against four of the original defendants: CTT; Frank McPike of Ridgefield, Connecticut, the former CEO of CTT; John R. Glushko, formerly a registered representative associated with a broker-dealer in Las Vegas, Nevada; and former registered representative Thomas C. Kocherhans of Orem, Utah.
The judgments against CTT, McPike, Glushko and Kocherhans, to which they consented without admitting or denying the Commission's allegations, enjoin them from violating Sections 9(a) and 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and, as to Glushko and Kocherhans only, Section 17(a) of the Securities Act of 1933 ("Securities Act"). Additionally, McPike and Kocherhans have agreed to pay civil penalties of $60,000 and $50,000, respectively. Glushko was also held liable for $10,000 in disgorgement plus $8,308 in prejudgment interest, but payment of the disgorgement and prejudgment interest amounts were waived and no penalty was imposed based upon Glushko's financial condition. The Court will determine whether additional sanctions, including a bar from serving as an officer or director of any public company, are warranted against McPike at a later date.
The jury found Strauss liable for violating Sections 9(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act. In addition, the jury found Strauss liable for aiding and abetting defendant and former registered representative Chauncey Steele's violations of Sections 9(a) and 10(b) of the Exchange Act. Steele previously settled the Commission's action against him in 2005. The district court will determine the appropriate sanctions and remedies against Strauss at a later date. In addition, the jury found that Kwak and Wilson had not violated Section 17(a) of the Securities Act, but the jury could not reach a verdict on the remaining charges against them, including Sections 9(a) and 10(b) of the Exchange Act.
For further information about the Commission's action in SEC v. Competitive Technologies, Inc., et al., see Litigation Release No. 18827 (August 11, 2004), Litigation Release No. 19320 (August 2, 2005), and Exchange Act Release No. 56785 (November 14, 2007).