SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16163 / May 27, 1999
Securities and Exchange Commission v. Hartley T. Bernstein,
No. 99 Civ. 3885 (S.D.N.Y.)
ATTORNEY SETTLES CHARGES THAT HE PROFITED BY MORE THAN $500,000 FROM
ROLE IN LARGER MICROCAP SECURITIES FRAUD
The Securities and Exchange Commission ("Commission") today filed its third civil action arising from the massive securities fraud that was conducted through Sterling Foster & Co., Inc. ("Sterling Foster"), a registered broker-dealer. In todays Complaint, which was filed in federal court in Manhattan, the Commission charged an attorney with fraudulently obtaining over $500,000 by selling securities shortly after the initial public offerings ("IPOs") of five companies for which the defendants law firm acted as counsel.
Named in the Commissions Complaint is:
HARTLEY T. BERNSTEIN ("Bernstein"), age 49, of Armonk, New York, who, at the time of the transactions and events alleged in the Complaint, was a partner in the law firm of Bernstein & Wasserman, LLP.
According to the Complaint:
Bernstein acquired unregistered securities of Advanced Voice Technologies, Inc. ("Advanced Voice"), Com/Tech Communications Technologies, Inc.("Com/Tech"), Embryo Development Corp. ("Embryo"), and Applewoods, Inc. ("Applewoods"), companies whose IPOs were being underwritten by Sterling Foster, and of Perrys Majestic, Inc., a company whose IPO was co-underwritten by VTR Capital, Inc. and Investors Associates, Inc. ("Investors Associates"). The unregistered securities of those issuers that Bernstein acquired were registered along with the securities that were to be sold in each of those IPOs. In all of the IPOs except Applewoods, Bernstein knew or was reckless in not knowing that he would sell those securities at below-market prices to one of the underwriters soon after the commencement of the IPO. In the Applewoods IPO, Bernstein and Sterling Foster agreed that Bernstein would sell his Applewoods securities to Sterling Foster, through another broker-dealer, immediately upon the opening of the first day of after-market trading. Bernsteins sales of securities to Sterling Foster and Investors Associates provided those firms with a source of cheap stock to sell aggressively to their customers.
In its Complaint, the Commission alleges that Bernstein violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.
Simultaneously with the filing of the Complaint, Bernstein has consented, without admitting or denying the allegations of the Complaint to the entry of a final judgment that: (1) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (2) orders him to pay a civil penalty of $40,000.
In a parallel criminal proceeding, the United States Attorney for the Southern District of New York announced today that Bernstein has: (1) pled guilty to two criminal counts arising from the same underlying conduct, (2) pled guilty to one perjury count stemming from false testimony he gave the SEC during its investigation and (3) agreed to pay an additional $850,000 in restitution for his role in the fraud.
In February 1997, the Commission filed a civil injunctive action charging Sterling Foster and four individuals, including Adam Lieberman, Sterling Fosters president, with obtaining $75 million from investors by using boiler-room sales practices and other fraudulent conduct in connection with IPOs of Lasergate Systems, Inc., Advanced Voice Technologies, Inc., Com/Tech Communication Technologies, Inc., Embryo Development Corporation, Applewoods, Inc. and ML Direct, Inc. On November 9, 1998, Sterling Foster and Lieberman consented to the entry of final judgments that: (1) permanently enjoined Sterling Foster and Lieberman from further violations of the federal securities laws; (2) ordered Sterling Foster and Lieberman to disgorge $75,000,000, waived down to $11,486,064.21, including prejudgment interest, plus proceeds of the sale, at fair market prices, of additional assets turned over to the United States government. The Commissions action against the remaining defendants, Craig Kellerman, Frank Monroig, and Dennis Rueb, is pending, but has been stayed.
Also in November 1998, the Commission filed a complaint against Michael Krasnoff a/k/a Michael Krasnov ("Krasnoff"), Michael Lulkin ("Lulkin"), MD Funding, Inc. ("M.D. Funding") and Special Equities, Inc. ("Special Equities, Inc.") alleging that Krasnoff and Lulkin and two companies that they controlled fraudulently obtained over $8.6 million through their participation in the IPOs of Advanced Voice Technologies, Inc., Com/Tech Communications Technologies, Inc., Embryo Development Corporation, Applewoods, Inc. and ML Direct, Inc. These defendants allegedly knew or were reckless in not knowing that the prospectuses for these IPOs failed to disclose their arrangements to sell their stock to Sterling Foster immediately after the commencement of the IPOs at below-market prices. That litigation is pending.
This enforcement action is part of the Commissions four-pronged approach to attacking microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SECs response to microcap fraud, visit the SECs Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm.
For more information see Litigation Release Nos. 15261 (February 18, 1997) and 15971 (November 9, 1998).http://www.sec.gov/litigation/litreleases/lr16163.htm