U.S. Securities and Exchange Commission
Litigation Release. No. 18187 /June 10, 2003
Securities and Exchange Commission v. The Hartcourt Companies, Inc., Alan V. Phan, And Yongzhi Yang, Civil Action No.CV 03-3698 LGB (PLAx) (C.D. Cal.)
The Securities and Exchange Commission announced that on May 27, 2003, it filed a complaint in federal district court in Los Angeles against The Hartcourt Companies, Inc., based in Long Beach, California, Alan V. Phan, Hartcourt's former Chairman, CEO and President and a resident of Long Beach, and Yongzhi Yang of Los Angeles. The complaint alleges that the defendants participated in a scheme to illegally raise money for Hartcourt by using a Form S-8 registration statement.
According to the complaint, from September 1999 to November 1999, Hartcourt raised over $800,000 by issuing one million shares of Hartcourt stock, pursuant to a Form S-8 registration statement, to Yang's wife, purportedly to compensate her for services provided to Hartcourt. The complaint alleges that Phan, with Yang's assistance, used the majority of the Form S-8 stock to raise capital for Hartcourt. Form S-8 registration statements permit the issuance of stock to consultants to compensate them for services rendered but cannot be used by the issuer, such as Hartcourt, to raise capital for itself. The complaint also alleges that Phan caused Hartcourt to issue a series of false and misleading press releases while Yang was selling stock into the market. During the period in which Hartcourt issued the press releases, its stock price rose from $1.27 to $4.50, a 254% increase.
The Commission's complaint alleges that the defendants violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking permanent injunctions and civil penalties against Hartcourt, Phan, and Yang and disgorgement and prejudgment interest against Hartcourt and Yang. In addition, the Commission is seeking an officer and director bar against Phan.