-------------------- BEGINNING OF PAGE #1 ------------------- SECURITIES AND EXCHANGE COMMISSION LITIGATION RELEASE NO. 14785 / January 18, 1996 SECURITIES AND EXCHANGE COMMISSION v. ROBERT D. GERSH, BOSTON MUNICIPAL SECURITIES, INC. AND DEVONSHIRE ESCROW AND TRANSFER CORP., Defendants, and MA'AYAN BOOK COMPANY, INC., CHARLES RIVER LANDING, LTD., CRL GROUP, INC., CULINARY CLASSICS OF CHESTNUT HILL, INC., CULINARY CLASSICS OF BURLINGTON, INC., THE KITCHEN SHELF, INC., AND THE COMPU-BILL CO., INC., Relief Defendants, Civil Action No. 95-12580(RCL)(D. Massachusetts, filed November 29, 1995) The Securities and Exchange Commission announced that, on January 12, 1996, after a hearing, the Honorable Reginald C. Lindsay granted the Commission's request for a preliminary injunction against Defendants Robert D. Gersh ("Gersh"), of Burlington, Massachusetts, Boston Municipal Securities ("BMS"), and Devonshire Escrow and Transfer Corp. ("Devonshire") and Relief Defendants Ma'Ayan Book Company, Charles River Landing, Ltd., CRL Group, Inc., Culinary Classics of Chestnut Hill, Inc., Culinary Classics of Burlington, Inc., The Kitchen Shelf, Inc. and the Compu-Bill Co., Inc. ("Relief Defendants"). The order, which supersedes a prior temporary restraining order issued by the court, continues to freeze the Defendants' assets and to require that the Defendants provide an accounting. The Commission's complaint, filed ex parte in the United States District Court for the District of Massachusetts, alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and Section 17(a) of the Securities Act of 1933 and sought a temporary restraining order, preliminary and permanent injunctions, disgorgement, civil monetary penalties and an asset freeze and other equitable relief. On November 30, 1995, the Court granted the requested relief. In addition, on December 11, 1995, the Court granted the Commission's motion for appointment of a receiver to take control of the assets of the corporate and Relief Defendants, and those assets are being operated by the receiver for the benefit of investors. The Commission's complaint alleged that from early 1990 to the present, Defendant Gersh and two of his wholly-owned corporate entities, Defendants BMS and Devonshire, offered and sold securities in the form of Certificates of Participation ("COPs") in 34 securities offerings which raised approximately $14 million from investors in at least six states. In connection with the offer and sale of these securities, the complaint alleged that the Defendants engaged in continuing fraudulent acts which include the misappropriation of over $7 million in investor funds. The complaint alleged that, to induce public investors to invest in these COPs, the Defendants marketed the offerings as - 2 - tax-exempt municipal securities, collateralized by equipment leases entered into by state and local governments. The Defendants made multiple false statements and omissions of material fact. These included falsely promising that investments were fully-secured by state and municipal obligations, that Gersh would merely pass-through the collateral payments to investors and that a trustee would protect the interests of investors. In -------------------- BEGINNING OF PAGE #2 ------------------- fact, however, Gersh only used a portion of the proceeds to invest in state and local government leases. Gersh commingled the proceeds of the investments and misappropriated the monies to invest in a variety of personal business ventures. The complaint further alleged that Gersh's failure to use investor proceeds as represented deprived investors of information material to an assessment of the tax-exempt status of the COPs. The complaint further alleged that Gersh falsely represented that a portion of investor monies would be set aside in a debt service reserve account, failed to disclose that he exercised control over the trustee, and falsely represented that the COPs were issued pursuant to the authority of state or local government agencies. To date, six Gersh COPs issues have defaulted. On July 1 and September 1, 1995, Gersh defaulted on the State of Washington Series 1990A ($3,020,000) and the State of Wisconsin Series 1990A ($380,000), respectively. In addition, three other Gersh COPs issues, the State of Florida Series 1990A ($1,250,000), the State of Wisconsin Series 1990B ($270,000) and the City of Providence, Rhode Island Series 1990B ($700,000), defaulted on December 1, 1995, and the Westchester County, NY 1981 G Lane ($415,000) COPs issued by Gersh defaulted on December 31, 1995. Those funds have not been repaid to investors. Additional defaults are expected. Two other Gersh COPs issues, consisting of Livingston County, NY ($400,000) and Onondaga County, NY ($805,000), mature on January 31 and December 15, 1996, respectively. Bank accounts controlled by the receiver contain only about $300,000 and nearly all of the leases securing the outstanding COPs have been prepaid. Gersh has no other apparent source of funds available to repay COPs investors. The receiver is taking steps to preserve remaining assets and assure an equitable distribution of any remaining funds to all investors. For further information, see Litigation Release No. 14742.