U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20806 / November 13, 2008
Accounting and Auditing Release No. 2899 / November 13, 2008
Securities and Exchange Commission v. Patrick D. Quinlan et al., Case No. 02-60082 (E.D. Mich.)
FEDERAL COURT GRANTS SUMMARY JUDGMENT AND ENTERS PERMANENT INJUNCTION AND OFFICER AND DIRECTOR BAR AGAINST FORMER MCA CEO
The Securities and Exchange Commission (Commission) announced that on November 7, 2008, the Honorable Judge Marianne O. Battanni of the United States District Court for the Eastern District of Michigan granted the Commission's motion for summary judgment against Patrick D. Quinlan, Sr., the former CEO of MCA Financial Corporation (MCA), for his involvement in a fraudulent scheme perpetrated by MCA. Quinlan was the last remaining defendant in a civil injunctive action filed by the Commission on April 23, 2002. The Complaint in that case alleged that Quinlan and six other defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws, among other things, as a result of their involvement in a financial and offering fraud by MCA. The Complaint further alleged that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials and that as a result, investors lost at least $49 million. The Complaint also alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission and that as a result, investors in the debentures lost all $19 million invested.
In its 25-page summary judgment opinion, the Court found that Quinlan, as a result of the collateral estoppel effect of his guilty pleas in criminal proceedings, was primarily liable for MCA's misrepresentations of material facts to investors in connection with the offer and sale of MCA pass-through certificates and debentures from 1994 through 1999. The Court further found that Quinlan was liable for, among other things: (1) aiding and abetting MCA's filing of materially false annual and quarterly reports from 1996 through 1998; and (2) making false and misleading statements to MCA's auditors in 1997 and 1998. The Court permanently enjoined Quinlan from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 thereunder. The Court also imposed an officer and director bar against Quinlan.
Previously, in February 2004, Quinlan pled guilty to one count of conspiracy to commit mail, wire and bank fraud and to make false statements in a matter within the jurisdiction of a federal agency and one count of making false statements to the Commission for his involvement in MCA's fraudulent scheme. In July 2005, Quinlan was sentenced to ten years in prison and ordered to pay $256.6 million in restitution based on his guilty pleas. U.S. v. Quinlan et al., Case No. 01-80514 (E.D. Mich.).
For additional information, see Litigation Release Nos. 17484 (April 23, 2002), 18131 (May 12, 2003), 18195 (June 19, 2003), 18512 (December 18, 2003) and 19323 (August 3, 2005).