U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20958 / March 17, 2009
Securities and Exchange Commission v. Tecumseh Holdings Corporation, et al., Civil Action No. 03 CV 5490 (SAS) (S.D.N.Y.)
COURT ENTERS CONSENT JUDGMENTS AGAINST DEFENDANTS GERARD A. MCCALLION, TECUMSEH HOLDINGS CORPORATION, TECUMSEH TRADEVEST LLC, AND S.B. CANTOR & CO., INC.
The Securities and Exchange Commission announced that on March 9, 2009, the U.S. District Court for the Southern District of New York entered final consent judgments against defendants Gerard A. McCallion, Tecumseh Holdings Corporation, Tecumseh Tradevest LLC, and S.B. Cantor & Co., Inc. Without admitting or denying the allegations of the complaint, McCallion consented to a final judgment permanently enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5, and from controlling any person who violates Section 17(a) of the Exchange Act and Rules 17-3 and 17a-4. The consent judgment also bars McCallion from participating in an offering of penny stock pursuant to Section 21(d)(6) of the Exchange Act, orders him to pay a civil penalty of $40,000 and disgorgement of $1, and requires him to release all claims he may have against defendants Tecumseh, Tradevest, and Cantor.
Without admitting or denying the allegations of the complaint, the receiver for Tecumseh, Tradevest, and Cantor consented to a final judgment that permanently enjoins Tecumseh and Tradevest from violating Section 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 and that permanently enjoins Cantor from violating Sections 5(a) and 5(c) of the Securities Act and Section 17(a) of the Exchange Act and Rules 17a3 and 17a-4. The consent judgment also bars Tecumseh, Tradevest, and Cantor from participating in an offering of penny stock pursuant to Section 21(d)(6) of the Exchange Act, orders Tecumseh to disgorge ill-gotten gains of $7,271,134, and holds Cantor jointly and severally liable with Tecumseh for $850,000 of Tecumseh's disgorgement liability.
The Commission's complaint, filed on July 24, 2003, alleges that, beginning in June 2000, the defendants Tecumseh, Tradevest and Milling engaged in unregistered, fraudulent offerings and sales of securities in Tecumseh, a purported financial services company with offices in New Jersey and California, and Tecumseh's subsidiary, Tradevest. Tecumseh and Tradevest conducted the fraud largely through the efforts of defendant John L. Milling, a securities lawyer and Tecumseh's senior official. According to the complaint, Tecumseh, Tradevest, and Milling acted with the assistance of Cantor, then a registered broker-dealer; McCallion, Cantor's President; defendant Anthony M. Palovchik, Tecumseh's Vice President; and defendant Dale Carone, manager of Tecumseh's California office; and others. Through the unregistered fraudulent offerings, the defendants together raised approximately $10 million from about 500 investors nationwide. The complaint also names as relief defendants three Tecumseh affiliates: Alpha Fund, Alpha LLC, and Stracq, Inc.
The complaint alleges that Tecumseh, Tradevest, and Milling induced investors to acquire securities of Tecumseh and Tradevest by means of a host of material misrepresentations. Through offering memoranda and other materials, these defendants (a) touted false and misleading profit projections; (b) promised some investors "returns on investment" or "dividends" without disclosing that Tecumseh and Cantor had no earnings to distribute and that any such payments necessarily would come from capital, including funds raised from other investors; and (c) made materially misleading statements concerning NASD approval for Tecumseh's acquisition of Cantor. The complaint also alleges that Tecumseh, Tradevest, and Milling knew or acted in reckless disregard of the fact that their representations to investors concerning these matters were materially false and misleading.
Previously, relief defendant Stracq consented to a final consent judgment ordering it to disgorge ill-gotten gains of $660,000. In addition, defendants Carone and Palovchik have previously consented to judgments enjoining them from future violations of the securities laws and barring them from participating in an offering of penny stock pursuant to Section 21(d)(6) of the Exchange Act. Pursuant to their consent judgments, monetary relief against them will be determined later by the court on motion by the Commission.
The Commission has dismissed the complaint against relief defendants Alpha Fund and Alpha LLC. The case remains pending against Milling.