Litigation Release No. 17703 / August 29, 2002
SEC FILES INJUNCTIVE ACTION AGAINST IRA J. GAINES IN
CONNECTION WITH GAINES' FRAUDULENT MINI-TENDER OFFER SCHEME
Securities and Exchange Commission v. Ira J. Gaines, individually and d/b/a Wrigley Drive Partners and Morten Avenue Partners, Civil Action No. CIV02-1685 PHX (PGR) (D. Ariz.)(complaint filed August 29, 2002)
The Securities and Exchange Commission (SEC or Commission) announced today that it filed a complaint in the United States District Court for the District of Arizona against Ira J. Gaines, a resident of Phoenix, Arizona, individually and d/b/a Wrigley Drive Partners and Morten Avenue Partners. According to the SEC's complaint, from September 1999 through March 2001, Gaines, through Wrigley and Morten, made fraudulent "mini-tender offers" to shareholders to purchase from them up to 1% of the outstanding stock of 287 public companies. The SEC alleges that Gaines deceived the shareholders by falsely implying in his offers that he had the financial means to fund a maximum 1% tender, and by failing to disclose the following material facts: (1) Gaines' offer price was below the prevailing market price; (2) Gaines reserved sole discretion to modify his offers, including the offer price and the offer period; and (3) Gaines could terminate his offers without notice, regardless of how many shareholders had tendered shares.
According to the Commission, Gaines knew, or was reckless in not knowing, that the shareholders were not receiving this material information. In the complaint, the Commission supports this allegation by pointing out that in 1999, Gaines agreed, in settled proceedings, to a Commission order against his company, IG Holdings, for virtually identical conduct. In the Matter of IG Holdings, Inc., Exchange Act Release No. 41759 (August 19, 1999). The Commission additionally alleges in its complaint that Gaines engaged in obstructionist tactics in connection with the Commission staff's investigation of the Wrigley/Morten matter.
According to the Commission, the information that did not reach the shareholders would have alerted them to the unfair bargain Gaines was offering. Illustrating this contention, the SEC alleges in its complaint that the shareholders tendered shares at a price that was, on average, 29% below the prevailing market price. In further illustration of this contention, the SEC alleges that Gaines unilaterally extended offer periods to capitalize on rising trends in the market price of the targeted stock, and reduced his offer price or terminated offers to maintain his profit margin in the face of declining trends in the target stock's market price. The SEC further alleges that Gaines' unilateral actions harmed the tendering shareholders, while enriching Gaines in the approximate total amount of $275,000.
The Commission alleges in its complaint that Gaines, through Wrigley and Morten, violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 14e-1 thereunder. In its complaint, the Commission requests that the court permanently enjoin Gaines from violating the antifraud and tender offer antifraud provisions of the Exchange Act, order Gaines to disgorge all monies derived from his fraudulent scheme, plus prejudgment interest, and impose against Gaines a civil money penalty.
