U.S. Securities and Exchange Commission
Commission Sues Southern California Recidivist
Litigation Release No. 18207 / July 1, 2003
Securities and Exchange Commission v. EK-1, Inc. and Stephen Lee Adlman, Case No. CV 03-4655 CBM (FMOx).
On June 30, 2003, the Securities and Exchange Commission filed a settled securities fraud action against EK-1, Inc., a Southern California company, and its President and Chief Executive Officer, Stephen Lee Adlman, who was the subject of a prior Commission enforcement action. EK-1 claimed to distribute an engine disruption device for use by law enforcement officers to stop high-speed vehicle pursuits. The Commission's complaint alleges that EK-1 and Adlman conducted a fraudulent unregistered securities offering between May 2000 and April 2002. EK-1 raised approximately $700,000 from the sale of its stock to 64 investors nationwide.
The two defendants are:
The complaint alleges that EK-1 and Adlman made four misrepresentations to investors. First, they represented that EK-1 distributed a patented engine disruption device for use by law enforcement officers to stop high-speed vehicle pursuits. In fact, it had only an unpatented prototype that was never distributed. Second, they claimed that EK-1 would have an initial public offering (IPO) of its stock, but in fact it never was in a position to commence an IPO nor did it ever file a securities registration statement with the Commission. Third, they promised that EK-1 would spend 50% of investor proceeds distributing the device but actually spent only 15% on expenses related to the device. They spent approximately 79% on expenses relating to the securities offering, including payments to sales agents, purchases of lead lists, and the preparation, printing, and delivery of the offering materials. Adlman retained about 6% of investor funds ($40,869) for himself. Finally, they stated that EK-1's success depended on Adlman but failed to disclose his Commission bar order or a conviction in a market manipulation scheme. In 1974, Adlman pled guilty in an unrelated market manipulation fraud scheme and was sentenced to three years probation. This felony conviction for consipiracy was in the Southern District of New York. See Litigation Release No. 6436 (July 15, 1974).
The Commission sued EK-1 and Adlman for violations of the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. EK-1 and Adlman consented to the entry of permanent injunctions from future violations of the applicable securities laws, without admitting or denying the allegations in the complaint. Adlman further agreed to pay $40,869 in disgorgement of his ill-gotten gains, plus interest, and $120,000 in civil penalties, and to be permanently barred from serving as an officer or director of any public company.