U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19007 \ December 20, 2004
SECURITIES AND EXCHANGE COMMISSION v. TEXAS AMERICAN GROUP, INC., ALAN E. HUMPHREY, RICHARD E. LEE, AND WILLIAM GROSVENOR, Civil Action No. CV 00-1955 (RCL) (D.D.C.) (filed August 11, 2000
COURT ENTERS FINAL JUDGMENTS AGAINST HUMPHREY AND LEE
DEFENDANTS AGREE TO PAY $100,000 IN PENALTIES
On November 16, 2004, the Honorable John D. Bates, U.S. District Judge for the District of Columbia, entered a final judgment of permanent injunction and other relief against defendants Alan E. Humphrey and Richard E. Lee, who have both consented to the entry of the judgments against them, without admitting or denying the allegations in the Commission's complaint. The final judgment against Alan E. Humphrey, who is currently in Chapter 13 bankruptcy, permanently enjoins him from future violations of the registration, antifraud and lying to auditors provisions of the federal securities laws, permanently bars him from acting as an officer or director of a public company, and orders him to pay a $50,000 civil penalty over two years with interest, subject to the approval of the bankruptcy court. The final judgment against Richard E. Lee permanently enjoins him from future violations of the registration and antifraud provisions of the federal securities laws, and orders him to pay a $50,000 civil penalty over three years with interest.
In a prior ruling on February 20, 2003, the U.S. District Court for the District of Columbia issued default judgments against defendant Texas American Group, Inc., permanently enjoining it from violating the registration, antifraud and reporting provisions of the federal securities laws, and against defendant William Grosvenor, permanently enjoining him from violating the antifraud provisions of the federal securities laws.
In its complaint, the Commission alleged that in 1995 and 1996, the defendants repeatedly made false statements about the company's assets and financial condition in filings with the Commission, at investor seminars, and in promotional materials and advertisements. The complaint further alleged that during the same period, Texas American Group issued over 170 million unregistered shares of its common stock in sham offshore transactions.
According to the complaint, the defendants claimed that Texas American Group owned the Amarilla Golf and Country Club, purportedly a $148 million resort in the Canary Islands, even though Texas American Group never actually owned Amarilla. The complaint also alleged that Texas American Group falsely claimed to own various other assets, including internet lottery and casino games, a hotel development and management company, and a London pathology testing service. The complaint further alleged that Texas American Group falsely claimed in national advertisements recommending the stock that it had $300 million in assets.
In addition, as alleged in the complaint, the defendants issued over 170 million unregistered shares of Texas American Group stock to various offshore persons and entities, for the purported purpose of obtaining real estate and other assets. Notwithstanding the offshore nature of the transactions, the complaint alleged that the issuance of this stock did not qualify for the Regulation S safe harbor from registration because Texas American Group's actions constituted a scheme to temporarily place the securities offshore in order to evade the registration requirements of the federal securities laws. The complaint alleged that Texas American Group's scheme to evade the registration requirements of the federal securities laws was evidenced by the fact that: (i) many, if not all, of the transactions for which Texas American Group issued stock were shams; (ii) in many cases the stock was issued to entities that appeared to be controlled by individuals associated with Texas American Group; and (iii) the stock flowed back into the United States almost immediately after the expiration of what was then the 40-day restricted period under Regulation S.
The complaint alleged that by their conduct, all of the defendants violated the antifraud provisions of the Securities Exchange Act of 1934 ("Exchange Act"), as set forth in Section 10(b) and Rule 10b-5 thereunder. The complaint also alleged that Texas American Group, Humphrey and Grosvenor violated the antifraud provisions of the Securities Act of 1933 ("Securities Act"), as set forth in Section 17(a). The complaint further alleged that Texas American Group, Humphrey and Lee violated the registration provisions of Section 5 of the Securities Act. In addition, the complaint alleged that Humphrey violated Rule 13b2-2 of the Exchange Act for lying to an auditor about the Amarilla transaction and that the company violated Section 13(a) of the Exchange Act and Rules 12b-20, 12b-25, 13a-1, 13a-11, and 13a-13 in connection with various reporting violations. See also Litigation Release No. 16652 / August 14, 2000.