UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7412 / April 3, 1997 SECURITIES EXCHANGE ACT OF 1934 Release No. 38474 / April 3, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9201 _______________________________ In the Matter of : : ORDER MAKING FINDINGS SKY SCIENTIFIC, INC., et al. : AND IMPOSING REMEDIAL : SANCTIONS BY DEFAULT I. Douglas A. Glaser is in default under the Securities and Exchange Commission s ( Commission ) Rules of Practice, Rules 155 and 220(f), 17 C.F.R. .. 201.155 and .220(f) (1996), because he failed to answer the Order Instituting Public Proceedings ( OIP ) which the Commission issued on December 16, 1996, failed to respond to the Order to Show Cause which I issued on March 11, 1997, and failed to participate in the February 3, 1997, status conference of which he had been notified.-[1]- ---------FOOTNOTES---------- -[1]- Respondent Thomas Patrick Meehan and George T. Hellen were also included in my Order to Show Cause and the Division of Enforcement s ( Division ) March 7, 1997, Motion for Default ( Motion ). Subsequently, Respondent Meehan contacted the Division and entered settlement negotiations, and Respondent Hellen submitted an answer to the OIP. The Division then withdrew its Motion as to them. Plaintiff s Memorandum in Support of Recommended Sanctions (March 19, 1997); Plaintiff s Withdrawal of Motion for Default Against Respondent George T. Hellen (March 24, 1997).. ==========================================START OF PAGE 2====== II. Accordingly, I find that the allegations in the OIP insofar as they pertain to Respondent Glaser are true-[2]-: A. Sky Scientific, Inc. ("Sky") is a California corporation with headquarters in Boca Raton, Florida. Sky's common stock has been registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") (File No. 1-10565) since August 1990. Sky makes periodic filings with the Commission on Forms 10-Q, 10-K and 8-K. Between March 31, 1993 and May 31, 1995, Sky filed approximately 106 registration statements and amendments on Form S-8 registering approximately 30 million shares of common stock. Sky purports to be in the businesses of precious metals mining and processing and financial services. B. Gilbert Marshall & Co., Inc. ("Gilbert Marshall") is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act (File No. 8-30071) since September 1983, with its principal office in Greeley, Colorado. Gilbert Marshall had branch offices which offered and sold Sky stock from about March 1994 through at least April 1995. C. Strategic Resource Management, Inc. ("Strategic") is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act (File No. 8-44031) since August 1991, with its principal office in Englewood, Colorado. Strategic had a branch office located in Englewood, Colorado, that offered and sold Sky stock from about November 1993 through about March 1994. D. A registered representative ( the RR ) began working at Strategic in about April 1993. In about July 1993, through a wholly owned corporation, the RR opened and began to operate a branch office of Strategic, and in about November 1993 the RR began to offer, sell, and direct other registered representatives who offered and sold Sky stock to the public. The RR continued to operate the branch for Strategic until about March 1994. In March 1994, the RR left Strategic and became a registered representative at Gilbert Marshall, and the RR s office became a branch office of Gilbert Marshall. While at Gilbert Marshall, the RR continued to offer and sell Sky stock and to direct other registered representatives who offered and sold Sky stock. The RR sold the branch office to Douglas Glaser in about September 1994 (see below) and left Gilbert Marshall. ---------FOOTNOTES---------- -[2]- The findings contained herein are solely for the purpose of this order against Respondent Glaser and are not binding on any other person or entity named as a respondent in this or any other proceeding.. ==========================================START OF PAGE 3====== E. Douglas A. Glaser was a registered representative prior to November 1993. From about November 1993 to about July 1994, he was a promoter for Sky, and received cash payments from Sky and from a stock promoter who raised capital for Sky in 1993 and 1994, which he shared with the RR. Glaser became a registered representative at Gilbert Marshall in July 1994 and in about September 1994, through a wholly owned corporation, bought the RR's branch. Glaser offered and sold Sky stock, and directed other registered representatives who offered and sold Sky stock, at Gilbert Marshall until about November 1994, when he left Gilbert Marshall. From about November 1994 through at least June 1995, Glaser continued to offer and sell Sky stock to public investors. F. During the period from about April 1993 through about June 1995, Glaser willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act") in that he, directly or indirectly, made use of means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell, sell and deliver after sale certain securities, namely shares of common stock of Sky, to the public, through the use of any prospectus, when no registration statement was filed or in effect pursuant to the Securities Act as to the public sale of those securities. G. During the period from about April 1993 through about June 1995, Glaser willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that he directly or indirectly, in connection with the purchase or sale of Sky securities by use of the means or instrumentality of interstate commerce or by use of the mails, employed devices, schemes, or artifices to defraud, made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and engaged in acts, practices, or courses of business which would and did operate as a fraud or deceit upon the sellers and purchasers of the securities. H. As part of and in furtherance of the conduct and activities: 1. Sky, and two of its founders, executives, and directors, made untrue statements of material facts and omitted to state material facts to the public and investors and prospective investors through Sky press releases and Forms 10-Q, 10-K and 8-K, and through oral statements to several respondents in this proceeding and in promotional brochures regarding: a. the existence and value of Sky's assets, liabilities, mining business, properties, precious. ==========================================START OF PAGE 4====== metals reserves, environmental compliance, revenues, and mining technology; b. the magnitude of Sky's income, expenses, net loss, sources and uses of capital, and financial ability to continue its activities without material interruption; c. the value of preferred stock issued by Sky or its subsidiaries in connection with acquisition of assets; d. the proposed spin off of a subsidiary called Sky Scientific Financial Services, Inc. ("Financial Services"), the operations and personnel of Financial Services, and the value of financial instruments purportedly issued by a Russian bank and purportedly owned by Financial Services; e. the nature of services purportedly being performed by consultants whom Sky was paying with common stock, and capital raising being conducted or orchestrated by a Sky stock promoter and others; f. the identity of the authors and publishers of promotional brochures and the actual compensation paid by Sky to the authors and publishers; and g. the prospects and likelihood of success of Sky's business ventures and the risks of investing in Sky stock. 2. Glaser, and registered representatives under his direct or indirect control, made untrue statements of material facts and omitted to state material facts to investors and prospective investors, orally, through Sky's periodic filings and press releases, and through brochures regarding those items described in paragraph H1 above; and 3. Between about November 1993 and November 1994, Glaser received cash payments from a Sky promoter which he shared with the RR, and Glaser received stock from Sky. The RR and Glaser, in connection with offers and sales of Sky stock, omitted to state to investors and prospective investors, or caused registered representatives under their direct or indirect control to omit to disclose, such payments. I. During the period from about April 1993 through about June 1995, Glaser willfully and with scienter violated Section 17(a)(1) of the Securities Act in that he directly or indirectly, in the offer or sale of Sky securities by the use of the means or. ==========================================START OF PAGE 5====== instruments of transportation or communication in interstate commerce or by the use of the mails, employed devices, schemes, or artifices to defraud, by engaging in those activities described in paragraphs H1, H2, and H3 above. J. During the period from about April 1993 through about June 1995, Glaser willfully violated Sections 17(a)(2) and (3) of the Securities Act in that he directly or indirectly, in the offer or sale of Sky securities by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, obtained money or property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and engaged in transactions, practices, or courses of business which would and did operate as a fraud or deceit upon the offerees and purchasers of the securities, by engaging in those activities described in paragraph H1, H2, and H3 above. III. The Division filed a Memorandum in Support of Recommended Sanctions and affidavit in support on March 20, 1997, in response to my Order to Show Cause. The Division requests a cease and desist order, a bar, disgorgement, and civil penalties. It requests disgorgement of $210,800 representing: 1) $10,000 in approximate proceeds from the sale of Sky stock received from affiliates of the issuer, 2) $190,300 received from affiliates of Sky as an inducement to promote Sky stock, 3) $4,000 from approximate commissions earned on direct sales of Sky stock, and 4) $6,500 in advances against firm profits on sales of Sky stock. The Division requests $745,000 in third-tier civil penalties. It states that this amount is proportional to the pecuniary harm caused by Glaser through his fraudulent conduct as it represents the amount of gross proceeds raised by Glaser and the salespeople he managed through the sale of worthless Sky stock to investors. The Division states that Respondent Glaser was responsible for 145 violative transactions but that an amount representing third- tier penalties of $100,000 for each of 145 violations would be unrealistically high. I find that it is in the public interest to order Respondent Glaser to cease and desist from further violations of the Securities Act and the Exchange Act, to bar him from association with any broker or dealer, -[3]- to order disgorgement in ---------FOOTNOTES---------- -[3]- The Division also asks for a bar from association with any municipal securities dealer, investment adviser, or investment company. However, those sanctions are provided for in (continued...). ==========================================START OF PAGE 6====== the amount of $210,800 in illgotten gains, and to order payment of $745,000 in civil penalties. A third tier penalty is justified in this case because the Respondent s acts involved fraud and deceit when he received undisclosed payments and made misrepresentations to investors, and because the Respondent acted in reckless disregard of the Commission s regulatory requirements regarding the registration of stock. Further, Respondent Glaser s acts directly resulted in substantial pecuniary losses to investors who bought Sky stock. Exchange Act Section 21B(3). IV. ACCORDINGLY, it is: ORDERED pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act that Douglas A. Glaser cease and desist from committing or causing violations or any future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; ORDERED pursuant to Sections 15(b) and 19(h) of the Exchange Act that Douglas A. Glaser is barred from association with any broker, dealer, or registered securities association. ORDERED pursuant to Section 21B of the Exchange Act that Douglas A. Glaser disgorge $210,800 plus prejudgment interest from July 1, 1995, through the last day of the month preceding which payment is made at the rate of interest established under Section 6621(a)(2) of the Internal Revenue Code, 28 U.S.C. . 6621(a)(2), compounded quarterly, pursuant to Rule 610 of the Commission s Rules of Practice; and ORDERED pursuant to Section 21B of the Exchange Act that Douglas A. Glaser pay a civil penalty of $745,000. Payment of sums owed shall be: (i) made by United States postal money order, certified check, bank cashier s check, or bank money order; (ii) made payable to the Securities and Exchange Commission; (iii) delivered by hand to courier to the Office of the Secretary, Securities and Exchange Commission, 450 5th Street, N.W. Washington, D.C. 20549; and (iv) submitted under cover letter which identifies Glaser as the Respondent in these proceedings, and the file number of these proceedings. The Division shall submit a plan of disgorgement no later than sixty (60) days after Glaser has paid any or all of the disgorgement amount and interest. ---------FOOTNOTES---------- -[3]-(...continued) statutory sections other than Sections 15(b) and 19(h) of the Exchange Act, the authority cited in the OIP in this proceeding.. ==========================================START OF PAGE 7====== __________________________________ Carol Fox Foelak Administrative Law Judge.