U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19116 / March 3, 2005
Accounting and Auditing Enforcement
Release No. 2205 / March 3, 2005
SECURITIES AND EXCHANGE COMMISSION V. ISSAC A. SUTTON, United States District Court for the Southern District of New York, Case No. 99 Civ. 3889
The Securities and Exchange Commission ("Commission") today announced that on, September 29, 2004, following an eight-day trial in New York, New York, a jury returned a verdict in favor of the defendant, Isaac A. Sutton. The Commission charged Isaac Sutton, 55, with violating the federal securities laws by making false public statements regarding the financial condition of Happiness Express Incorporated ("Happiness Express"), a designer, developer, and manufacturer of toys and children's room decorations located in New York, New York.
The Commission alleged at trial that, while Happiness Express' Chief Operating Officer and its Head of Sales, Isaac Sutton falsely overstated Happiness Express' sales results in the company's fiscal year 1995 Form 10-K filed with the Commission. Specifically, the Commission alleged that Isaac Sutton falsely stated in the Form 10-K that Happiness Express' total sales for its 1995 fiscal year were over $60 million, when, in reality, the company's total fiscal year 1995 sales were $52 million. Isaac Sutton admitted at trial that he signed the Form 10-K, and that the Form 10-K falsely overstated Happiness Express' sales by $8 million. Isaac Sutton, however, denied having had any knowledge of the falsity of the sales figures at the time that he signed the Form 10-K.
The Commission charged Isaac Sutton with violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act ("Exchange Act"), and Rule 10b-5 promulgated thereunder. In addition, under Section 20(a) of the Exchange Act, the Commission charged that, as a control person of Happiness Express, Isaac Sutton was liable for Happiness Express' false statements.
The Commission originally brought its case in May 1999 against Isaac Sutton and four other individuals, including former Happiness Express CEO (and Isaac Sutton's brother) Joseph Sutton, and former Happiness Express CFO Michael Goldberg. The Commission previously settled its claims against Michael Goldberg, and obtained a default judgment against Joseph Sutton (and also has resolved its claims against the other two defendants).
On the same day that the Commission filed its civil action, the United States Attorney for the Southern District of New York filed criminal charges against Isaac Sutton and Joseph Sutton arising out of the same alleged fraudulent activities at Happiness Express. Joseph Sutton pleaded guilty to conspiracy to commit bank fraud and securities fraud and received a 30 month prison sentence. Michael Goldberg pleaded guilty to an information alleging conspiracy to commit bank fraud and securities fraud, and was sentenced to six months house arrest and three years probation. In June 2001, a jury acquitted Isaac Sutton of all criminal charges.
SEC v. Sutton, et al., 99 Civ. 3889 (S.D.N.Y.). Regarding defendants Joseph A. Sutton, Isaac A. Sutton, Michael Goldberg, Stephen Weissman, and Mitchell Goldberg, see also L.R. No. 16164(May 27, 1999) and L.R. 18008 (February 28, 2003).