U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No.18448 / November 6, 2003
Securities and Exchange Commission v. Peter C. Lybrand f/k/a Peter C. Tosto, Richard S. Kern, Donald R. Kern, Charles Wilkins, Admiral Investments Ltd., Compulink International Corp., Drawbridge Investments Ltd., Glittergrove Investments Ltd., Grafton Investments Ltd., Greenford Investments Ltd., McDonalds Ltd., Oasis Enterprises Ltd., Investor Relations, Inc., Tellerstock, Inc., Conversant Enterprises, Inc., EFI Corp. a/k/a Electronic Funds, Inc., Barclay Bankcard, Inc., Canyon Vista Corp., and Salteaux Ltd. a/k/a First American Security Corp. a/k/a First American Securities Corp., Defendants, and Hannah G Irrevocable Trust and Hannah R Trust, Relief Defendants, U.S. District Court for the Southern District of New York, 00 Civ. 1387 (SHS)
COURT FINDS THAT RICHARD S. KERN, DONALD R. KERN AND CHARLES WILKINS ENGAGED IN FRAUD AND DECEIT IN MARKET MANIPULATION
Richard S. Kern, Donald R. Kern and Charles Wilkins
Are Permanently Enjoined and Ordered to Pay
$7.7 Million in Disgorgement and Interest and $1.1 Million in Civil Penalties
On September 11, 2003, the United States District Court for the Southern District of New York found that Richard S. Kern, of Weston, Florida, Donald R. Kern, of Fort Lauderdale, Florida, and Charles Wilkins, of Scottsdale, Arizona, had engaged in fraud and deceit by participating in a "market manipulation that resulted in millions of dollars in losses to unwitting investors, and could not have occurred but for defendants' active involvement and knowledge." In a Final Judgment entered on October 2, 2003, the Court enjoined Richard Kern, Donald Kern, and Charles Wilkins, and three entities, EFI Corp., Barclay Bankcard, Inc., and Canyon Vista Corp., from violating Section 5(a) and (c) of the Securities Act of 1933. Defendants Richard Kern, Donald Kern, and Charles Wilkins previously had consented, without admitting or denying the Commission's allegations, to an injunction prohibiting them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Court ordered Richard Kern, Donald Kern, and Charles Wilkins to pay disgorgement of almost $6 million, plus prejudgment interest of about $1.7 million, jointly and severally with EFI Corp., Barclay Bankcard, Inc., and Canyon Vista Corp. The Court ordered relief defendants Hannah R Trust and Hannah G Irrevocable Trust to pay disgorgement of almost $1 million, plus prejudgment interest of approximately $280,000. The Court also ordered Richard and Donald Kern to pay a civil penalty of $400,000 each, and ordered Charles Wilkins to pay a $300,000 civil penalty. When determining whether to impose the penalties, the Court considered, among other things, "the individuals' lack of cooperation with the SEC with respect to the diminution of assets - the proceeds of illegal activities - that were frozen pursuant to an Order of this Court on July 6, 2000."
The Commission's complaint, filed on February 24, 2000, alleged that the Kerns and Wilkins aided and abetted co-defendant Peter C. Lybrand in a stock manipulation and that the Kerns and Wilkins made unregistered sales of the securities of three shell corporations: Polus, Inc., Citron, Inc., and Electronic Transfer Associates, Inc. ("ETA"). Lybrand, formerly known as Peter C. Tosto, was enjoined by the Court in this case in March 2002, and is serving an 87-month prison sentence for crimes he committed in connection with the manipulation, among other things. The complaint alleged that beginning in March 1998, Lybrand arranged to acquire Polus, Citron, and ETA from the Kerns and Wilkins, who controlled virtually all of the issued and outstanding shares of the shell corporations. Instead of collecting their sale price directly from Lybrand, the complaint alleged that the Kerns and Wilkins agreed to accumulate their sale price by selling a small percentage of their shares into the public market. Since there was not an active trading market for the securities, Lybrand created an artificial market by orchestrating a series of matched trades in which the Kerns and Wilkins sold their shares to other parties at prices fixed by Lybrand. The complaint further alleged that Lybrand also created interest in the stocks by issuing misleading press releases. Lybrand's manipulation of the securities market caused the stock prices of each corporation to increase dramatically. Finally, the complaint alleged that after the Kerns and Wilkins had accumulated their sale price, they transferred to Lybrand the balance of the shares that they owed him and then continued to sell their remaining shares into the market at artificially inflated prices, realizing total illegal profits of about $6 million before the Commission suspended trading in the securities on January 29, 1999.
The Commission acknowledges the assistance of NASD Regulation, Inc., in this matter. For further background information, please see Litigation Release No. 16448 (February 24, 2000) and Litigation Release No. 16064 (February 18, 1999).