UNITED STATES OF AMERICA
SECURITIES EXCHANGE ACT OF 1934
The Securities and Exchange Commission ("Commission") deems it appropriate in the public interest and for the protection of investors to institute a public administrative proceeding pursuant to Sections 15(b)(6) and 19(h) of the Securities Exchange Act of 1934 ("Exchange Act") against Rafi M. Khan ("Khan"). Accordingly, IT IS HEREBY ORDERED that said proceeding be, and hereby is, instituted.
In anticipation of the institution of this proceeding, Respondent has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondent admits the jurisdiction of the Commission over him and over the subject matter of this proceeding and admits the entry of the judgment of permanent injunction set forth in paragraph III.D., Respondent consents to the entry of the findings and remedial sanctions set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds that:
A. From March to October 1993, Khan worked as a stockbroker at the main office in Beverly Hills, California of Reynolds Kendrick Stratton, Inc., a formerly registered (now defunct) broker-dealer. From October 1994 to December 1996, Khan operated a
one-person Southern California branch office of Shamrock Partners, Ltd., a registered broker-dealer.
B. Future Communications, Inc. ("FCMI") was at all relevant times a cable television programming company based in Dallas, Texas. Between June 30 and August 30, 1993, FCMI's stock price more than quadrupled, from $6.50 per share to $27.25 per share. During this time, the stock was traded on the National Association of Securities Dealers Automated Quotation system ("NASDAQ"). On August 31, 1993, the NASD halted trading in FCMI stock. The stock subsequently was delisted and never again traded on NASDAQ. In November 1993, FCMI declared bankruptcy and the company was liquidated. Khan recommended FCMI stock to his clients and others from at least June 30, 1993 through at least August 30, 1993.
C. The L. L. Knickerbocker Co., Inc. ("KNIC") is based in Lake Forest, California, and is engaged in celebrity-endorsed marketing and other ventures. Between July 3 and August 11, 1995, KNIC's stock price increased more than eightfold, from $6.00 to $52 per share. Shortly thereafter, KNIC's price dropped 46%. On August 25, 1999, the NASD delisted KNIC's stock, and three KNIC creditors filed a petition to liquidate the company. Khan recommended KNIC to his clients and others from at least July 3, 1995 through at least August 30, 1995.
D. On April 17, 2000, the United States District Court for the Central District of California entered a Judgment of Permanent Injunction and Other Relief ("Judgment") against Khan. The Judgment permanently enjoins Khan from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. SEC v. Rafi M. Khan, et al., Civil Action No. 98-6143 MMM (SHx) (C.D. Cal.).
E. The Commission's Complaint filed in the action described above alleges, among other things, that during the respective periods that Khan recommended FCMI and KNIC stock to his clients and others, Khan orchestrated the manipulation of FCMI's and KNIC's stock price through the use of a variety of fraudulent and deceptive acts. The complaint alleges that these acts included, among other things: acquiring substantial control of the "float"; imposing a "no net selling" policy; purchasing to stabilize prices; executing unauthorized trades; parking stock; discouraging sales; making materially misleading statements; publishing wildly exaggerated earnings and price projections; promoting a short squeeze scheme; tipping others about proprietary information; selling at or below market prices; establishing price domination; and engaging in trading collusion. The Complaint further alleges that each of these acts constituted a violation of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule
Based upon the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to impose the sanctions specified in Respondent's Offer.
Accordingly, IT IS HEREBY ORDERED that Respondent Khan be, and hereby is, barred from association with any broker or dealer, with the right to reapply for association after five years to the appropriate self-regulatory organization, or if there is none, to the Commission.
By the Commission.
Jonathan G. Katz