U.S. SECURITIES AND EXCHANGE COMMISSION
Lit. Release No. 21912 / April 1, 2011
Securities and Exchange Commission v. Neurotech Development Corporation, et al., 04-CV-4667 (Platt) (United States District Court for the Eastern District of New York, Complaint filed October 29, 2004)
FEDERAL COURT ORDERS OFFICERS OF NEUROTECH TO DISGORGE ILL-GOTTEN GAINS AND PAY PENALTIES
The Securities and Exchange Commission (“Commission”) announced today that on March 23, 2011, the Honorable Thomas C. Platt, United States District Court for the Eastern District of New York, adopted, in full, a Magistrate Judge’s previously-issued Report and Recommendation against Neurotech Development Corporation’s (“Neurotech”) sole officers, the father-son management team of Bernard Artz (chairman, chief executive officer and chief financial officer) and Lawrence Artz (vice president). Pursuant to the March 23 Order, Bernard Artz must pay a total of over $173,000 and Lawrence Artz must pay a total of over $141,000 in disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.
The Commission originally filed its action against Neurotech, Bernard Artz and Lawrence Artz in October 2004. The complaint alleged that, between at least 1999 and 2003, Neurotech falsely claimed in Commission filings and press releases that it had: (i) sold and built prefabricated hospitals in China and Indonesia, and (ii) entered into billions of dollars of overseas construction contracts. The Commission’s complaint also alleged that the company made false public statements about possessing certain fraudulent “bank guarantees” it could purportedly use to finance the building of hospitals. The Commission also alleged that Bernard Artz and Lawrence Artz contemporaneously sold the company’s common stock into the market for illicit gains.
In April 2010, Neurotech reached a settlement with the Commission and Bernard Artz and Lawrence Artz agreed to partial settlements with the Commission. Bernard and Lawrence Artz consented to entry of judgments permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder (antifraud provisions), Section 16(a) of the Exchange Act (failure to make change of beneficial ownership filings), and aiding and abetting Neurotech’s violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder (reporting provisions). In addition, Bernard Artz consented to an injunction from violating Exchange Act Rule 13a-14 (false certification of Commission filings). Both individual defendants also consented to five-year officer and director and penny stock bars, and left disgorgement, prejudgment interest, and civil penalties to be decided by the Court. Neurotech settled the matter by consenting to the entry of a final judgment providing for a permanent injunction from violating Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.
Thereafter, the court considered the issue of disgorgement, prejudgment interest, and civil penalties as to Bernard Artz and Lawrence Artz. The Order issued on March 23, 2011, adopting a recommendation by a Magistrate Judge, requires Bernard Artz to disgorge $131,414, plus prejudgment interest of $32,017.42, and pay a civil penalty of $10,000. Similarly, Lawrence Artz must disgorge $57,129.73, plus prejudgment interest of $79,846.92, and pay a civil penalty of $5,000. The Magistrate Judge stated that the recommended civil penalties were “third tier” penalties and that he considered the defendants’ financial conditions in his decision to not recommend higher penalty amounts. Under the Exchange Act, a “third tier” penalty is one where the violation involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, and such violation directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons.
For further information, please see Litigation Release Numbers 18952 (October 29, 2004) [filing of complaint]; 18236 (July 18, 2003) [subpoena enforcement action against Lawrence Artz]; 18159 (May 28, 2003) [subpoena enforcement action against Bernard Artz].