SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17880 / December 6, 2002
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1682
FORMER OFFICERS AND DIRECTORS OF REGAL COMMUNICATIONS CORP. SETTLE SEC FINANCIAL FRAUD CHARGES
SEC SUSPENDS FORMER REGAL CFO AND IN-HOUSE LEGAL COUNSEL FROM PRACTICING BEFORE THE COMMISSION
SECURITIES AND EXCHANGE COMMISSION V. ARTHUR L. TOLL, BRUCE B. EDMONDSON, GERALD LEVINSON AND ELLIOT S. FISHER, 98-CV-2325 (HH) (E.D. Pa.)
The Commission announced today that four former officers and directors of Regal Communications Corp. ("Regal"), a Philadelphia area company, agreed without admitting or denying the allegations in the Commision complaint to the entry of final judgments, in Securities and Exchange Commission v. Arthur L. Toll, Bruce B. Edmondson, Gerald Levinson and Elliot S. Fisher, 98-CV-2325 (HH) (E.D. Pa.). The court enjoined all four defendants, barred Toll and Edmondson from serving as officers and directors of public companies and ordered disgorgement. The Commission filed its complaint on May 4, 1998, and the action was subsequently stayed pending the conclusion of related criminal proceedings, United States v. Arthur L. Toll, et al., Cr. No. 98-606-01 (E.D. Pa.) (the "Criminal Action")
The Commission's Complaint alleged that from March 1992 through December 1993, Arthur L. Toll, Regal's former chief executive officer, chairman of the board of directors, and majority shareholder, Bruce B. Edmondson, Regal's former chief financial officer and member of the board of directors and its audit committee, Gerald Levinson, former member of Regal's board of directors and its audit committee and Elliot S. Fisher, former member of Regal's board of directors and its audit committee, in-house legal counsel, and corporate secretary, each knowingly or recklessly made materially false and misleading statements, and omitted to state material information, in numerous periodic reports and registration statements that they signed and that Regal filed with the Commission. Regal, now defunct, was a public company based in Fort Washington, Pennsylvania, where it engaged in telephone "900" services and television infomercial marketing. During the time that these reports and registration statements were publicly available, Regal's stock traded over the NASDAQ. In addition, Regal used the false reports and registration statements in connection with a July 1993 $35 million debenture offering, the March 1993 acquisition of two companies from celebrity Joan Rivers, and the September 1993 acquisition of Inphomation, Inc., an infomercial production and marketing company responsible for "Dionne Warwick's Psychic Friends' Network."
The Complaint alleged that the Defendants engaged in a massive financial fraud. Edmondson caused Regal to record fictitious business revenues and receivables. Edmondson and Toll supported these fictitious items with fictitious or misleading sales documents and bank records. To lend credibility to the false information and to deceive Regal's independent auditors, Edmondson and Toll paid off many of the fake receivables with Regal's own money, including funds that they obtained through concealed sales of Regal's stock and warrants. They circulated over $23 million from Regal's checking accounts into the accounts of companies privately-owned by them. They then caused the private companies to funnel a substantial portion of the money back to Regal in amounts equal to the amounts of the fictitious revenues and receivables. The Defendants' fraud inflated Regal's revenues and receivables, causing Regal's recorded income and assets to be materially overstated in reports and registration statements filed with the Commission from July 9, 1992 through August 10, 1993. As a result of the fraud, the Defendants received ill-gotten gains (mostly profits from selling Regal stock) totaling over $2.2 million.
On November 1, 2002, the Court barred Toll and Edmondson from serving as officers or directors of any public company. In addition, the Court permanently enjoined all four defendants from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder. The Court also ordered Toll, Edmondson and Fisher to disgorge their ill-gotten gains: $811,706.50 from Toll, $1,265,613.48 from Edmondson, and $131,000.00 from Fisher. Edmondson's disgorgement was deemed partially satisfied based on his payment of restitution in the Criminal Action and the remainder was waived based on his financial condition. Similarly, Toll's and Fisher's disgorgement were satisfied by their restitution obligations.
The Commission also announced two related administrative proceedings. In Administrative Proceeding File No. 3-10961, Securities Exchange Rel. No.46953, AAE Rel. No.1680, the Commission issued an order forthwith suspending Edmondson from appearing or practicing before the Commission as an accountant. Edmondson consented to the Order, which the Commission issued pursuant to Rule 102(e)(2) of its Rules of Practice, without admitting or denying its findings. Throughout his employment at Regal, Edmondson was licensed as a CPA. Similarly, in Administrative Proceeding File No. 3-10962, Securities Exchange Rel. No. 46954, AAE Rel. No. 1681, the Commission forthwith suspended Fisher from appearing or practicing as an attorney before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice. Edmondson and Fisher's criminal convictions provided the basis for suspension under Rule 102(e)(2).