LITIGATION RELEASE NO. 18284 / August 13, 2003
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1841 / August 13, 2003
Securities and Exchange Commission v. Stefan M. Palatin, Civil Action No. 00-CV-1909 (D.D.C. filed August 8, 2000)
On July 31, 2003, Judge Colleen Kollar-Kotelly, of the United States District Court for the District of Columbia, entered a Final Judgment of Permanent Injunction and Officer and Director Bar By Default against Stefan M. Palatin. The judgment enjoins Palatin, the former chairman and CEO of The Cronos Group, from violating the antifraud, reporting, books and records, and internal controls provisions of the Securities Act of 1933 (Section 17(a)) and the Securities Exchange Act of 1934 (Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and Rules 10(b)(5), 12b-20, 13a-1, 13a-16, 13b2-1 and 13b2-2). The judgment also permanently bars Palatin from acting as an officer or director of a public company. In October 2002, Palatin was convicted on criminal fraud charges in Austria and received a nine year sentence based on his conduct in the interception of payments described below.
The court found that Palatin, by his default, was deemed to have admitted the allegations in the Commission's complaint. The court also held that Palatin caused Cronos to misrepresent or fail to disclose a series of transactions by which he obtained more than $10 million from Cronos or from a customer of the company who owed funds to Cronos. As a consequence of Palatin's misconduct the company misrepresented or failed to disclose the transactions in the company's registration statement, public statements to shareholders, and in filings with the Commission between 1995 and 1998. Palatin also caused the transactions to be recorded inaccurately in Cronos' books and records and he made and caused to be made misrepresentations to the company's auditors. Cronos, a Luxembourg holding company with its operational headquarters in San Francisco, California, manages and owns marine cargo containers.
Specifically, the court found that Palatin caused Cronos to fail to disclose that he intercepted payments between Cronos and one of its major customers (which Palatin also controlled); he caused Cronos to pay him millions of dollars in the year before its initial public offering and recorded the payments as a loan to a third party; and Palatin improperly failed to disclose that he, through another entity that he controlled, sold shares in Cronos' IPO. Following the IPO, Palatin caused Cronos to fail to disclose that it paid additional funds to him immediately after the offering. Palatin pledged collateral he did not own to secure a loan from the company and he caused the company to make misrepresentations concerning the collateral. In addition, the court found that Palatin controlled the company's disclosures and was the beneficiary of the transactions that the company misrepresented in its filings and public statements.
For more information, see Litigation Release No. 16645 (August 8, 2000). Previously, the Commission instituted administrative proceedings against Cronos, Axel E. Friedberg, Rudolf J. Weissenberger, Peter D. Stewart, John L. Harbor and David Chopping. In the Matter of the Cronos Group, Admin. Proc. No. 3-10096; SA Rel. No 33-7771; SEA Rel. No. 34-42139; AAE Rel. No. 1208 (November 15, 1999); In the Matter of Axel E. Friedberg and Rudolf J. Weissenberger, Admin. Proc. File No. 3-10263; Rel. 34-43129; AAE Rel. No. 1291; In the Matter of Peter D. Stewart, C.A., John L. Harbor, C.A., and David Chopping, C.A., Admin. Proc. File No. 3-10820; SEA Rel. No. 34-46157; AAE Rel. No. 1587 (July 2, 2002). All of these releases are available at the Commission's website at http://www.sec.gov. The Commission acknowledges the valuable assistance provided in this matter by the governmental authorities of Austria, Switzerland and the United Kingdom.