SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16847 / January 2, 2001
SECURITIES AND EXCHANGE COMMISSION v. ALLAN G. KERN, YALE HIRSCH, and MALCOLM MCGUIRE III, United States District Court for the District of New Jersey, Civil Action No. 96-3746 (HAA).
The Commission today announced that the United States District Court for the District of New Jersey has entered a Final Judgment against Malcolm McGuire III, concluding the above-captioned litigation. McGuire agreed to settle the Commission's action against him by consenting to the entry of the Final Judgment which: (a) permanently enjoins McGuire from violating Section 17(b) of the Securities Act of 1933 ("Securities Act"); (b) imposes $19,885.10 in disgorgement and prejudgment interest but waives payment of that amount based on McGuire's sworn statements demonstrating his inability to pay; and (c) does not impose civil penalties based on McGuire's inability to pay. The Honorable Harold A. Ackerman issued the Final Judgment against McGuire on May 16, 2000.
On June 12, 2000, the Commission entered a settled Order Instituting Public Administrative Proceedings Pursuant to Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order") against McGuire. McGuire consented to the Order, which is based on entry of the United States District Court injunction. The Order bars McGuire from association with any broker or dealer for six months.
The sanctions against McGuire stem from his publication, while a registered representative, of two research reports concerning Davstar Industries, Ltd., a start-up manufacturer of medical products ("Davstar"). McGuire prepared and disseminated those research reports to his customers and others without disclosing that he had received warrants to purchase Davstar common stock directly from the company and shares of Davstar common stock from his co-defendant Allan G. Kern, a former consultant to and employee of Davstar.
Prior to the Commission's settlement with McGuire, it had reached settlements with McGuire's two co-defendants, Allan G. Kern and Yale Hirsch. The Commission's Complaint against Kern, Hirsch, and McGuire alleged that they had participated in a scheme between May 1991 and November 1992 to artificially inflate the price of Davstar stock, in exchange for Davstar warrants and other consideration. According to the Complaint, the defendants artificially inflated the price of Davstar common stock during this period from approximately $1.00 to a high of $13.75 per share in November 1992. The Complaint alleged that each defendant received Davstar stock or warrants as compensation to promote Davstar to the investing public and, therefore, stood to realize personal financial gain from an increase in Davstar's stock price.
Hirsch, without admitting or denying the allegations in the Commission's Complaint, consented to entry of a Final Judgment that (a) permanently enjoins Hirsch from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(b) of the Securities Act; (b) imposes $127,007 in disgorgement and prejudgment interest; and (c) does not impose civil penalties based on Hirsch's sworn financial statement showing his inability to pay a penalty. Judge Ackerman issued the Final Judgment against Hirsch on February 17, 2000.
Kern, without admitting or denying the allegations in the Commission's Complaint, consented to entry of a Final Judgment that (a) permanently enjoins him from violating Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; (b) imposes $13,036 in disgorgement and prejudgment interest; and (c) imposes a civil penalty of $50,000. Judge Ackerman issued the Final Judgment against Kern on March 19, 1999.
For further information see Admin. Proc. File Nos. 3-8891 and 3-10239, and Litigation Releases No. 36560 (December 7, 1995); 15000 (August 6, 1996); and 15001 (August 6, 1996).