U.S. SECURITIES AND EXCHANGE COMMISSION LITIGATION RELEASE NO. 15237 / January 31, 1997 SECURITIES AND EXCHANGE COMMISSION v. CHARLES O. HUTTOE, ET AL., Civil Action No. 96-02543 (GK)(D.D.C.) UNITED STATES v. CHARLES O. HUTTOE, Cr. 96-429-A (JC)(E.D.Va.) The Securities and Exchange Commission announced that the Honorable James C. Catheris, United States District Judge for the Eastern District of Virginia, today sentenced Charles O. Huttoe ("Huttoe"), formerly the Chairman and Chief Executive Officer of Systems of Excellence, Inc. ("SOE") to a federal prison term of 46 months followed by 2 years supervised release and a $10,000 fine. Huttoe was sentenced pursuant to a criminal information charging him with one count of securities fraud in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and one count of money laundering in violation of 18 U.S.C.  1957. Huttoe entered into a plea agreement with the government on November 13, 1996. Both the criminal information and the plea agreement were filed under seal and remained sealed until late yesterday. On November 7, 1996, the Commission obtained a Temporary Restraining Order ("TRO") against Huttoe and others based on a complaint alleging a massive securities fraud at SOE. The TRO among other things prohibited ongoing violations of the securities laws, froze Huttoe's assets and prohibited him from traveling outside the United States. The criminal case against Huttoe was the result of a coordinated investigative effort by the Commission, the U.S. Attorney's Office for the Eastern District of Virginia and the Internal Revenue Service - Criminal Investigation Division from Northern Virginia and Las Vegas, Nevada. Huttoe's plea agreement requires that he cooperate in ongoing investigations conducted by the U.S. Attorney's Office and the Securities and Exchange Commission. The criminal information alleged that, in connection with the securities fraud count, from March 1995 through September 1996, Huttoe, in his capacity as Chairman and CEO of SOE, directed and controlled a massive distribution of the company's stock. In particular, the criminal information alleges that Huttoe distributed approximately 11 million shares of unregistered SOE stock to certain nominees, including three of his relatives, under his control. Although fraudulently created documents indicated that the shares had been issued to Huttoe's nominees in exchange for services rendered to the company, in fact these nominees did not provide such services to SOE. The criminal information further states that, pursuant to a scheme to manipulate the market price of SOE stock, after the issuance of a number of false press releases which caused an increase in the price of the stock, Huttoe directed the sale of the shares issued ==========================================START OF PAGE 2====== to his nominees. According to the information Huttoe realized millions of dollars of trading profits as a result of the sale of the nominee shares. In connection with the money laundering count, the criminal information further alleged that Huttoe subsequently transferred approximately $7.55 million of the trading profits from brokerage accounts opened in the names of the nominees to at least four different bank accounts opened in the names of the nominees. Thereafter, Huttoe transferred approximately $7.3 million from these accounts to an account at Patriot National Bank in Virginia. Finally, Huttoe transferred approximately $7.2 million out of this account by wire or check to various individuals or entities. The Commission also announced that on January 21, 1997, at a hearing in the Commission's case against Huttoe and others in United States District Court for the District of Columbia, the Honorable Gladys Kessler granted in part the Commission's motion to amend its Complaint. The amended Complaint names eleven individuals and entities as relief defendants for the purpose of securing the disgorgement of more than $12 million in illegal profits that the Commission previously alleged were obtained from the sale of SOE securities by Huttoe, members of his family and entities he controls (collectively the "Huttoe defendants"). The Court also granted the Commission's motion to amend the Complaint to add additional claims against defendants SGA Goldstar Research, Inc., Theodore Melcher, Shannon B. Terry, Alpha Securities Ltd. and Dunbar Holdings, Ltd. (collectively the "Goldstar defendants"). As amended, the Complaint alleges that the Goldstar defendants engaged in a systematic practice of publishing highly promotional investment recommendations for numerous issuers in exchange for compensation. The amended Complaint alleges that the Goldstar defendants failed to disclose either their compensation or whether they were selling their shares in the companies they were touting while they were recommending that subscribers to their newsletter purchase shares in those companies. Previously the Court issued orders freezing the assets of the Huttoe defendants and the Goldstar defendants. The Court continued that emergency relief, which includes freezes on the funds transferred by the Huttoe defendants to the relief defendants, until the next hearing in this matter, which is set for March 7, 1997 at 9:30 a.m. See SEC v. Huttoe, et al., Lit. Rel. 15153 (November 7, 1996), Lit. Rel. 15185 (December 12, 1996). On October 7, 1996, the Commission issued an Order suspending trading in SOE securities for ten days. See Securities Exchange Act Rel. No. 37791 (October 7, 1996). The Commission is cooperating with separate investigations in this matter carried on by the United States Attorney's Office for the Eastern District of Virginia and the Criminal Investigation Division of the Internal Revenue Service. ==========================================START OF PAGE 3====== The Commission's investigation in this matter is continuing.