SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16888 / February 6 , 2001
SECURITIES AND EXCHANGE COMMISSION v. MARTIN R. FRANKEL, JOHN A. HACKNEY. ROBERT J. GUYER, LIBERTY NATIONAL SECURITIES, INC., GARY ATNIP AND SONIA HOWE RADENCOVICI, 3:00 CV 1778 (EBB)
The Securities and Exchange Commission today filed a motion to amend the complaint filed in SEC v. Martin R. Frankel, et al., 3:00 CV 1778 (EBB), to add charges against two additional Frankel associates, Gary Atnip (Atnip) and Sonia Howe Radencovici (Howe). The Commission originally filed this action on September 18, 2000, charging Liberty National Securities, Inc. (LNS), a registered broker-dealer located in Dundee, Michigan, and Robert J. Guyer (Guyer), LNS' president, with aiding and abetting Frankel's fraud. See Lit. Release No.16707. On September 22, 2000, the Commission filed an amended complaint alleging that Martin R. Frankel (Frankel), who was permanently enjoined from committing securities fraud and barred from the securities industry in 1992, masterminded a massive fraud to loot the assets of Franklin American Corporation (FAC), a public holding company, and numerous insurance companies located in Tennessee, Alabama, Oklahoma, Mississippi, Missouri and Arkansas. See Lit. Release No.16719. The amended complaint also alleged that John A. Hackney (Hackney), FAC's Chief Executive Officer, participated in Frankel's fraud and deliberately hid Frankel's control of FAC, and his control over FAC's investments, from the Commission, state insurance regulators, employees of FAC and the public. Today's proposed second amended complaint alleges that Atnip, the Chief Financial Officer of FAC, worked closely with Frankel and Hackney, and deliberately hid Frankel's control of FAC, and his control over FAC's investments, from the Commission, state insurance regulators, employees of FAC and the public. The proposed second amended complaint alleges that Howe, Frankel's former fiancée and long-time business associate, participated in Frankel's fraud by preparing false monthly account statements and trade confirmations and otherwise misrepresenting to FAC and its insurance company subsidiaries that Frankel was investing their assets through LNS.
The proposed second amended complaint alleges the following:
Frankel commenced his fraudulent scheme in 1990, when he wanted to obtain a source of funds to buy and sell securities, and he decided to acquire businesses with liquid assets. Frankel retained Hackney in October 1990 to help Frankel acquire a bank and, subsequently, an insurance company. Hackney retained Atnip, an accountant, to assist in the process. Hackney and Atnip knew that Frankel wished to hide his identity from the outset of their relationship. Hackney helped Frankel establish the Thunor Trust (Thunor) to acquire FAC, a reporting company and the parent company of Franklin American Life Insurance Company (Franklin Life), while concealing Frankel's identity. Frankel appointed Hackney as Trustee of Thunor. When Thunor acquired FAC and Franklin Life, Frankel appointed Hackney to be CEO, President and a director of both companies. Atnip was appointed to be CFO and a director of both companies. Hackney and Atnip were positioned to serve as fronts for Frankel.
Through Thunor, Frankel ultimately acquired 83% of the outstanding stock of FAC. From 1991 through April 1999, Frankel directed FAC to acquire additional insurance company subsidiaries. Pursuant to Frankel's direction, Thunor also acquired and became the sole shareholder of International Financial Corporation (IFC), a holding company for four insurance companies. Frankel, Hackney and Atnip caused FAC, IFC and their subsidiary insurance companies to invest their assets, which are reported to exceed $215 million, through Frankel. Specifically, Frankel claimed to invest funds forwarded to him by FAC, IFC and their insurance company subsidiaries in government securities through accounts purportedly maintained at LNS.
Frankel did not, however, set up accounts for FAC, IFC and the insurance company subsidiaries at LNS. Instead, Frankel fabricated trades, which Howe, a former broker, reported on phony LNS monthly account statements, and fake trade confirmations that Howe generated and sent to FAC, IFC and their insurance company subsidiaries. Frankel invested a portion of the funds transferred to him by the insurance companies through brokerage accounts maintained at other broker-dealers. Frankel, however, used a significant portion of the insurance companies' funds for lavish living expenses for himself and Howe, among others, misappropriating millions of dollars.
Finally, FAC's periodic reports were materially inaccurate. In order to hide Frankel's involvement with FAC and the insurance companies, Hackney and Atnip filed inaccurate annual and quarterly reports with the Commission. FAC's annual and quarterly reports failed to disclose that Frankel was a controlling shareholder of FAC, and that Frankel was also responsible for investing FAC's and its insurance company subsidiaries' assets through LNS in a related party arrangement. The annual and quarterly reports also materially misrepresented FAC's financial condition. For instance, FAC's annual and quarterly reports materially misstated FAC's revenues from investments that were purportedly being executed through LNS. Hackney and Atnip also provided FAC's auditors with false information about the relationship among Frankel, Thunor, LNS and FAC. Additionally, Hackney and Atnip filed proxy statements on behalf of FAC that were materially misleading.
Accordingly, the Commission filed a motion to amend the complaint in SEC v. Martin R. Frankel, John A. Hackney, Robert J. Guyer and Liberty National Securities, Inc., 3:00 CV 1778 (EBB), to add Howe as a defendant alleging that Howe violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and to add Atnip as a defendant alleging that he violated Sections 10(b) and 13(b) of the Exchange Act and Rules10b-5 and 13b2-2 thereunder; and, as a control person, violated Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. The Commission is seeking permanent injunctions against future violations of these provisions of the securities laws; disgorgement of ill-gotten gains and pre-judgment interest; civil penalties; and orders barring Frankel, Atnip and Hackney from serving as an officer or director of a public company.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut in bringing this case.http://www.sec.gov/litigation/litreleases/lr16888.htm