U.S. Securities and Exchange Commission
Litigation Release No. 19381 / September 16, 2005
SEC v. Kimberly J. Carrella, et al., Civil Action No. 04-CV-3754 (E.D.N.Y.)
SEC SETTLES ACTION AGAINST FORMER COMPLIANCE OFFICER OF KIMBERLY SECURITIES, INC.
The Securities and Exchange Commission announced today that on September 6, 2005, the United States District Court for the Eastern District of New York entered a final judgment against John C. Kawas, Jr., the former compliance officer at Kimberly Securities, Inc. Without admitting or denying the allegations in the Commission's complaint, Kawas consented to the entry of the final judgment, which permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder. The judgment also ordered Kawas to pay $34,500 in disgorgement plus $5,547 in prejudgment interest, and imposed a $25,000 civil penalty.
The Commission's complaint alleged that from early 2000 until September 2002, Kimberly Securities' principals, including Kimberly Carrella, directed a fraudulent scheme to defraud Kimberly Securities' customers. Kimberly Securities registered representatives misrepresented, and failed to disclose, material information to investors to persuade them to open brokerage accounts and to invest significant funds. Once customers invested their funds, the registered representatives executed numerous transactions that were unauthorized by, and unsuitable for, these customers, and the registered representatives churned customers' accounts. Kawas aided and abetted the scheme by, among other things, failing to address red flags that registered representatives were executing authorized trades and churning accounts, and by obstructing customers' efforts to stop the improper trading in their accounts.
The Commission also announced today that it simultaneously instituted and settled administrative proceedings against Kawas. Kawas consented to the entry of an Order, pursuant to Section 15(b) of the Exchange Act, barring him from association with any broker or dealer.
The Commission is continuing to pursue this action against the six remaining defendants.
For information about earlier developments in this matter, see Litigation Release no. 18860 (Aug. 30, 2004).