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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 18864 / September 1, 2004

Court Issues Final Judgments Enjoining and Restraining Defendants Thomas Cavanagh, Frank Nicolois and U.S. Milestone From Violating the Registration and Anti-Fraud Provisions of Federal Securities Laws and Other Defendants From Violating the Registration Provisions

Final Judgments Order Remaining Defendants and Relief Defendants to Pay a Total of $3,375,000 in Civil Penalties and $15,061,333 in Disgorgement

SECURITIES AND EXCHANGE COMMISSION v. CAVANAGH, et al., 98 Civ. 1818 (DLC) (S.D.N.Y)

On August 27, 2004, the Honorable Denise L. Cote of the United States District Court for the Southern District of New York issued final judgments against the remaining defendants and relief defendants in the case, bringing to a complete adjudication the Commission's complaint filed on March 13, 1998, as amended on July 31, 1998. In an earlier opinion of July 15, 2004, Judge Cote found that the defendants engaged in a classic "pump and dump" fraud, pumping up the price of the unregistered stock of Electro-Optical Systems Corp., a small start-up company, through false announcements, while selling the stock at inflated prices to an unsuspecting public./p>

The final judgments require defendants Thomas Edward Cavanagh, Frank Nicolois and U.S. Milestone to pay disgorgement of $15,061,333 for the benefit of defrauded investors. This is in addition to the approximately $6.5 million previously paid, mostly by other settling defendants, as disgorgement in this case. Defendants Thomas Cavanagh, Frank Nicolois and U.S. Milestone also are ordered to pay civil penalties of $1 million apiece. Additionally, each of these three defendants has been permanently enjoined and restrained from violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act) and the anti-fraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The required disgorgement of over $15 million consists of all unpaid disgorgement in this case, and may be reduced by payments, if any, by the other remaining defendants and relief and relief defendants./p>

The final judgments similarly order defendants Thomas R. Brooksbank, James Everett Franklin and Thomas A. Hantges each to pay a civil penalty of $125,000, and to disgorge, jointly and severally, $1,414.816.87. In addition, defendants Brooksbank, Franklin and Hantges were ordered to disgorge, individually, $19,961, $52,243, and $312,530, respectively. This is in addition to the approximately $170,000 previously paid by defendant Brooksbank. The Court also permanently enjoined and restrained defendants Brooksbank, Franklin and Hantges from violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The joint and several disgorgement obligation of these defendants is subject to reduction by the amount of disgorgement that is paid, if any, by relief defendant Edward Kaufer./p>

The final judgments also order relief defendants Karen Cavanagh, Beverly Nicolois and Cromlix LLC to disgorge, jointly and severally, $639,374, and relief defendant Edward Kaufer to disgorge $217,033. Ms. Cavanagh and Ms. Nicolois are the respective spouses of defendants Cavanagh and Nicolois./p>

Related Litigation Releases: No. 15660 / March 13, 1998; No. 15715 / April 21, 1998; No. 16035 / January 21, 1999; No. 16152 / May 19, 1999; No. 16372 / November 29, 1999; No. 18787 / July 20, 2004

Related Administrative Proceedings: No. 34-49484 / March 26, 2004/p>

http://www.sec.gov/litigation/litreleases/lr18864.htm


Modified: 09/01/2004