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U.S. Securities and Exchange Commission


Litigation Release No. 17063 / July 6, 2001


SECURITIES AND EXCHANGE COMMISSION v. ENTERPRISES SOLUTIONS, INC., HERBERT S. CANNON, and DR. JOHN A. SOLOMON, United States District Court for the Southern District of New York, Case No. 00 Civ. 2685 (MGC)

The Securities and Exchange Commission announced today that on July 2, 2001 the Honorable Miriam G. Cedarbaum of the United States District Court for the Southern District of New York entered final judgments against defendants Herbert S. Cannon and John A. Solomon. The judgment against Cannon enjoins him from violating the antifraud provisions of the Securities Exchange Act of 1934, orders him to disgorge $1,000,000 of ill-gotten gains, and requires him to pay civil money penalties of $100,000. The judgment against Solomon orders him to pay civil money penalties of $10,000. The Court declined to enjoin Solomon.

Based upon evidence the Commission presented during a trial in January 2001, Judge Cedarbaum found, among other things, the following:

  • Cannon controlled ESI not only before Solomon's arrival, but also for some period of time after Solomon became President.

  • Both Cannon and Solomon committed securities fraud by knowingly and intentionally defrauding investors and deceiving government regulators in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Both defendants concealed Cannon's role in the management of Enterprises Solutions, Inc. ("ESI") to avoid disclosing that Cannon had an extensive history of past violations, including three prior criminal convictions, two SEC permanent injunctions and a bar from the securities industry.

  • Cannon had a significant ownership interest in the company as the beneficial owner of the ESI stock held by several entities based in Gibraltar, including relief defendants Rowen House, Ltd. and Montville, Ltd. Cannon reaped illicit profits by arranging to have these entities sell hundreds of thousands of shares of ESI stock at a time when ESI was making false statements about the company to the public.

  • During the period when Solomon and Cannon were directing ESI's activities, the company made false statements and material omissions in its registration statement, in a press release and on its website, including the following:

    • ESI's website represented that ESI had "developed a suite of products and solutions for internet security" and "established a business relationship with our customers that will last a lifetime." These statements misleadingly gave the impression that ESI was a fully developed company with an actual source of revenue, when in reality it had no revenues and no customers, it had not engaged in any product development, and its limited operations were funded solely by sales of stock and loans from investors. Solomon knew that these statements were false and misleading but knowingly allowed them to be published.

    • ; ESI's March 14, 2000 press release misleadingly overstated the security properties of ESI's internet security products and deceptively suggested that ESI had a product that was ready for sale to the marketplace.

    • ESI's registration statement failed to disclose that Solomon's prior company had gone bankrupt in 1995, even though Solomon conceded at trial that the information was relevant to investors and should have been disclosed.

Several previous Commission releases describe important events leading up to the Court's judgment. To stop the ongoing fraud, the Commission suspended trading in ESI's stock on March 30, 2000. See Exchange Act Rel. No. 42593 (March 30, 2000). One week later, the Commission filed this action and obtained an order which temporarily froze more than $2.3 million in ESI stock sale proceeds being held in the brokerage accounts of the relief defendants. See Litigation Release No. 16506 (April 7, 2000). On May 1, 2000, the Court granted a preliminary injunction extending the freeze pending the outcome of this case. See Litigation Release No. 16543 (May 9, 2000). On October 16, 2000, ESI consented, without admitting or denying the Commission's allegations, to be permanently enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and agreed to amend its registration statement. See Litigation Release No. 16778 (October 25, 2000).

The SEC acknowledges the assistance of the National Association of Securities Dealers Regulation, Inc. in investigating and prosecuting 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. For tips on how to avoid Internet "pump-and-dump" stock manipulation schemes, visit http://www.sec.gov/investor/online/pump.htm.


Modified: 07/06/2001