UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16231/Aug. 2, 1999
Securities and Exchange Commission v. Richard H. Steinberg, Timothy J. Brasel, Joseph J. Peirce, Roger M. Taft and Stuart J. Taft, Civil Action No. 99B1488 (D. Colo.)
On Aug. 2, 1999 the Commission filed a federal lawsuit alleging that five individuals manipulated the price of a microcap stock through matched trades that gave the false appearance of demand during an unregistered public distribution of the stock. The defendants include three residents of the Denver area, Richard H. Steinberg, Timothy J. Brasel, and Joseph J. Peirce, a Florida resident, Roger M. Taft, and Taft's son Stuart J. Taft, a resident of Connecticut. Steinberg has previously been enjoined and convicted in federal courts for violating the securities laws. The trading involved stock of Music Tones Limited, a public shell corporation controlled by Steinberg and other family members, and quoted on the OTC Bulletin Board.
The Commission alleges in its complaint that on February 20, 1997, Music Tones filed a Form 8-K with the Commission announcing that it had signed a letter of intent to purchase Simplex Medical Systems, Inc., a private operating company in Florida. Trading in the stock of Music Tones, orchestrated by Steinberg, commenced the next day, more than a week in advance of the merger. Over the next four trading days, the price rose from 3.125 cents per share to $2.50 per share. Almost all of the volume during this period involved sales by members of Steinberg's family and matching purchases by the promoters who then quickly resold the shares at prices up to $3.00 per share. These transactions also allegedly violated the registration provisions because Steinberg was directing sales of stock owned by persons who controlled Music Tones, but did not register the sales with the Commission or comply with any exemption from registration. The promoters who bought the stock from Steinberg through the matched trades also allegedly violated the registration provisions when they resold the stock, because they were underwriting an unregistered distribution of Music Tones stock to the public.
The Commission seeks preliminary and permanent injunctions to prevent Steinberg and the four promoters from continuing to violate the antifraud and registration provisions of the securities laws, specifically Sections 5(a) and (c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Commission also seeks an accounting, disgorgement, prejudgment interest, and the imposition of civil penalties.
This enforcement action is part of the Commission's four-pronged approach to attacking microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to microcap fraud and the litigation release for this case, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm. Finally, the Commission would like to acknowledge the assistance of the NASDR in completing this investigation.http://www.sec.gov/litigation/litreleases/lr16231.htm