Peter C. Lybrand f/k/a Peter C. Tosto, Richard S. Kern, Donald R. Kern, Charles Wilkins, Admiral Investments Ltd., Compulink International Corp., Drawbridge Investments Ltd., Glittergrove Investments Ltd., Grafton Investments Ltd., Greenford Investments Ltd., McDonalds Ltd., Oasis Enterprises Ltd., Investor Relations, Inc., Tellerstock, Inc., Conversant Enterprises, Inc., EFI Corp. a/k/a Electronic Funds, Inc., Barclay Bankcard, Inc., Canyon Vista Corp., and Salteaux Ltd. a/k/a First American Security Corp. a/k/a First American Securities Corp., Defendants, and Hannah G Irrevocable Trust and Hannah R Trust, Relief Defendants

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16448 / February 24, 2000

SECURITIES AND EXCHANGE COMMISSION v. PETER C. LYBRAND f/k/a PETER C. TOSTO, RICHARD S. KERN, DONALD R. KERN, CHARLES WILKINS, ADMIRAL INVESTMENTS LTD., COMPULINK INTERNATIONAL CORP., DRAWBRIDGE INVESTMENTS LTD., GLITTERGROVE INVESTMENTS LTD., GRAFTON INVESTMENTS LTD., GREENFORD INVESTMENTS LTD., McDONALDS LTD., OASIS ENTERPRISES LTD., INVESTOR RELATIONS, INC., TELLERSTOCK, INC., CONVERSANT ENTERPRISES, INC., EFI CORP. a/k/a ELECTRONIC FUNDS, INC., BARCLAY BANKCARD, INC., CANYON VISTA CORP., AND SALTEAUX LTD. a/k/a FIRST AMERICAN SECURITY CORP. a/k/a FIRST AMERICAN SECURITIES CORP., Defendants, and HANNAH G IRREVOCABLE TRUST AND HANNAH R TRUST, Relief Defendants, U.S. District Court for the Southern District of New York, 00 Civ. 1387 ( ) (S.D.N.Y.)

SEC CHARGES PETER LYBRAND (f/k/a PETER TOSTO) WITH MARKET MANIPULATION

The Securities and Exchange Commission today filed a complaint against Peter C. Lybrand, formerly known as Peter C. Tosto, charging him, and three other persons, with securities fraud and selling unregistered securities in a complex market manipulation that netted the defendants a total of over $12 million. The Complaint charges that, from June 1998 through January 1999, Lybrand manipulated the securities of three shell companies: Polus, Inc., Citron, Inc., and Electronic Transfer Associates Inc. ("ETA"), and that he sold securities of those companies in unregistered transactions. The complaint alleges that Lybrand carried out this scheme through eight foreign entities and three domestic entities that he controlled and/or owned, all of which are also named as defendants in today's action.

Lybrand, who has a residence in Madison, Georgia, is a recidivist securities law violator. He is currently awaiting sentencing in the United States District Court for the Southern District of New York, after pleading guilty on May 14, 1998 to one count of conspiracy to commit securities fraud in connection with his role in a broker-kickback scheme, unrelated to today's charges. He has been the subject of two earlier SEC enforcement actions, and in 1997 was barred from association with any broker dealer.

In today's action, the Commission also charged Richard S. Kern, of Aurora, Colorado, his brother Donald R. Kern, also of Aurora, and Charles Wilkins, of Scottsdale, Arizona, alleging that they too sold the stock of the shell companies in unregistered transactions and aided and abetted Lybrand's manipulation by participating in matched transactions. Finally, the complaint also charges four entities associated with the Kerns and Wilkins (EFI Corp, Barclay Bankcard, Inc., Canyon Vista Corp., and Salteaux Ltd.) with selling unregistered securities.

Specifically, the complaint alleges that:

  • Between March 1998 and November 1998, Lybrand arranged to purchase the three shell companies from the Kerns and Wilkins (the "Kern/Wilkins Group"), who directly or indirectly controlled virtually all of the issued and outstanding shares. Rather than paying the purchase price for each of the shell companies outright, Lybrand created artificial trading markets for the shares and then directed the Kern/Wilkins Group to sell small percentages of their share holdings in each of the shell companies into that market, in amounts and prices specifically directed by Lybrand.

  • Because there were no active markets for the securities of the shell companies, Lybrand first orchestrated a series of matched orders to "jump-start" the markets. Lybrand arbitrarily pegged the prices at which the Kern/Wilkins Group would sell their stock and then arranged for various brokers, friends, and acquaintances to purchase that stock.

  • The Kerns and Wilkins played a crucial role in Lybrand's scheme to create and jump-start the markets for the securities of the shell companies. By participating in the matched orders on the first days of trading for each company, the Kerns and Wilkins aided and abetted Lybrand's manipulation of the market and prices of the shell companies' securities.

  • Lybrand continued to manipulate the stock of the shell companies through fraudulent trading techniques, including additional matched orders and wash sales. He also manipulated the price of the securities through false or misleading press releases concerning each of the companies.

  • With respect to Citron and ETA, Lybrand's domestic entities also disseminated numerous press releases in December 1998 and January 1999 that contained misleading references to popular publicly-traded internet companies. When investors used the internet to research these established companies, they saw Citron listed as a "related company," from which they could "hyper-link" directly to information and press releases concerning Citron. As a result of these activities, the prices of the companies' securities increased significantly.

  • Lybrand also sold Polus, Citron, and ETA stock in unregistered transactions in the public markets through his foreign and domestic entities, defendants Admiral Investments Ltd., Compulink International Corp., Drawbridge Investments Ltd., Glittergrove Investments Ltd., Grafton Investments Ltd., Greenford Investments Ltd., McDonalds Ltd., Oasis Enterprises Ltd., Investor Relations, Tellerstock, Inc., and Conversant Enterprises Inc.

  • The Kerns and Wilkins ultimately transferred over 80% of the outstanding securities of each company to Lybrand's entities. In addition to selling Polus, Citron and ETA stock into the public markets on the first days of trading for each company, the Kerns, Wilkins and their entities sold securities into the public market when the stock prices of the three companies had increased dramatically as a result of the manipulative activities.

  • As a result of the fraud, Lybrand reaped illicit profits of at least $6.4 million, and the Kerns and Wilkins realized illicit proceeds totaling over $6.029 million.

    The Commission charges that Lybrand's conduct violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. He and his entities also sold the shell companies' securities in violation of Section 5 of the Securities Act, the registration provision of the federal securities laws. For their part, the Kerns and Wilkins are charged with violations of Section 5 of the Securities Act, and with aiding and abetting Lybrand's violations of Section 10(b) of the Exchange Act and Rule 10b-5.

    The relief sought by the Commission in this action includes permanent injunctions against future violations, disgorgement and civil penalties. In addition, the Commission today also filed a motion for a preliminary injunction to freeze the assets of the Kerns, Wilkins, and the relief defendants, two trusts alleged to be created by the Kerns for the benefit of their children.

    The Commission has taken prior action with respect to matters related to this complaint. Previously, on January 29, 1999, the Commission had temporarily suspended trading in the securities of Polus, Citron, and ETA for a ten-day period due to concerns about the adequacy and accuracy of publicly-available information concerning those companies. Approximately two weeks later, the Commission filed a civil action against Glittergrove Investments, Ltd., a defendant in today's action alleged to be one of Lybrand's foreign entities, and ultimately obtained disgorgement of $2.5 million that had been frozen as the proceeds of sales of Citron and ETA stock by Glittergrove. A distribution plan has been approved by the Honorable Sidney H. Stein in that matter. (See Litigation Release Nos. 16064 (February 18, 1999) and 16216 (July 22, 1999)). Thus, of the $6.4 million that Lybrand realized, $2.5 million has already been disgorged.

    Also today, the United States Attorney for the Southern District of New York announced that Lybrand has been arrested based on charges related to the facts alleged in the Commission's complaint.

    The Commission acknowledges the assistance of NASD Regulation, Inc. in this matter.

    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, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm. Information on trading suspensions is available at http://www.sec.gov/enforce/tsuspend.htm.