U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21733 / November 9, 2010
Accounting and Auditing Enforcement Release No. 3212 / November 9, 2010
Securities and Exchange Commission v. Duane Martin and Gary Trump, Civil Action No. 09-cv-05259 (N.D.Ill.)
SEC OBTAINS OFFICER AND DIRECTOR BAR AGAINST DUANE MARTIN, FORMER CEO OF UNIVERSAL FOOD & BEVERAGE CO.
On November 2, 2010, the District Court for the Northern District of Illinois entered a Final Judgment against Duane Martin in a civil action brought by the United States Securities & Exchange Commission (the Commission). Martin had been charged with a string of federal securities law violations committed during his tenure as Chief Executive Officer of the now-defunct Universal Food & Beverage Company. The judgment in SEC v. Duane Martin, et al., 09-cv-05259 (N.D. Ill.) permanently enjoins Martin from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (the Securities Act), and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the Exchange Act) and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting Universal's violations of Sections 13(a), 13(b)(2)(A), and 13(k) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. It also permanently bars him from participating in any penny stock offerings and from serving as an officer or director of a public company. The Court's Order was entered based on Martin's Consent to Final Judgment in which he neither admitted nor denied the allegations in the Commission's Complaint.
In its Complaint, the Commission alleged that Martin violated the registration provisions by improperly registering a Universal stock offering using Form S-8 — a registration method that is meant to cover offerings to bona fide employees and consultants of the company — and then surreptitiously directed the S-8 shares to stock promoters and Martin's personal creditors. The Complaint also alleges that Martin violated the antifraud provisions for multiple material misrepresentations and omissions to Universal's investors designed to hide the fact that Martin (a) improperly paid himself deferred salary, (b) had misappropriated company assets to pay himself and his creditors, (c) funneled S-8 shares to stock promoters and his creditors, and (d) took $234,430.66 in short-term loans from Universal in violation of Section 13(k) of the Exchange Act. To hide his self-dealing, Martin misled Universal's outside auditor and forged invoices to disguise payments he directed to his creditors. In so doing, Martin violated the Exchange Act's books and records provisions and aided and abetted Universal's violations of the Exchange Act's reporting provisions.
On Mar. 16, 2010 — based largely on the same set of facts developed in the Commission's investigation — the United States Attorney's Office for the Northern District of Illinois (the USAO) brought a criminal wire fraud charge against Martin. Martin pled guilty and, on Jul. 13, 2010, was sentenced to 41 months in prison and ordered to pay $618,441 in restitution to Universal's creditors. The Commission recognizes the efforts of the USAO and the Chicago Office of the Federal Bureau of Investigation in resolving this case.