UNITED STATES OF AMERICA
In the Matter of
ORDER INSTITUTING PUBLIC|
PURSUANT TO SECTION 15(b)
OF THE SECURITIES
EXCHANGE ACT OF 1934,
MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") against respondent Michael Danilovich ("Danilovich").
In anticipation of the institution of these proceedings, Danilovich has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.F and III.H below, which are admitted, Danilovich consents to the entry of this Order Instituting Public Administrative Proceeding Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.
On the basis of this Order and Danilovich's Offer, the Commission finds that:
A. Danilovich, 28, is currently incarcerated at Federal Correctional Institution McKean, in McKean, Pennsylvania. He previously resided in Brooklyn, New York. In 1998, Danilovich was president and secretary of Diagnostic Professional Imaging Services, Inc. ("Diagnostic"), a company purportedly formed to operate a Magnetic Resonance Imaging center in Brooklyn, New York. He also owned fifty percent of Diagnostic's pre-offering stock.
B. In 1998, Danilovich, and others, arranged for an offering, purportedly pursuant to Rule 504 of Regulation D, of 200,000 shares of common stock in Diagnostic. The offering raised more than $580,000 from at least fifty investors.
C. In connection with the Diagnostic offering, Danilovich, both directly and through individuals acting under his direction and control, represented to investors that (1) the proceeds of the offering would be raised for Diagnostic's legitimate business purposes and (2) that Diagnostic was going to launch an initial public offering in the near future. These representations were false. In fact, Danilovich and others diverted a substantial portion of the offering proceeds to their own personal benefit and, consequently, those proceeds were never used for Diagnostic's business. In addition, Diagnostic never had any plan to conduct an initial public offering. Danilovich knew or was reckless in not knowing that these representations were false. These misrepresentations were material.
D. Danilovich participated in the offering of the common stock of Diagnostic, a "penny stock" as that term is used in Section 15(b)(6) and as defined by Section 3(a)(51) of the Exchange Act and Rule 3a51-1 thereunder.
E. On June 14, 2000, the Commission filed a Complaint in the United States District Court for the Southern District of New York against Danilovich alleging that he engaged in the conduct described above. SEC v. Diagnostic Professional Imaging Services, Inc., 00 Civ. 4386 (NRB) (S.D.N.Y.) (the "Civil Action").
F. On February 25, 2003, a Final Judgment of Permanent Injunction and Other Relief ("Final Judgment") was entered by consent against Danilovich in the Civil Action, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
G. By reason of the foregoing, Danilovich willfully violated and has been permanently enjoined from violating Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
H. On March 14, 2001, Danilovich pled guilty to conspiracy to commit securities fraud in violation of Title 18 United States Code, Section 371, securities fraud in violation of Title 15 United States Code, Sections 78j(b) and 78ff, and conspiracy to commit money laundering, in violation of Title 18 United States Code, Section 371 before the United States District Court for the Southern District of New York, in United States v. Michael Danilovich, 00 CR 247-006 (LAP). On June 19, 2001, a judgment in the criminal case was entered against Danilovich. He was sentenced to a prison term of 30 months followed by three years of supervised release.
I. The counts to which Danilovich pled guilty alleged, among other things, that Danilovich defrauded investors and obtained money and property by means of materially false and misleading statements, and that he caused commercial carriers to deliver investor funds to Diagnostic.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent Danilovich's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
Pursuant to Section 15(b)(6) of the Exchange Act that Danilovich be, and hereby is, barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock; or inducing or attempting to induce the purchase or sale of any penny stock.
By the Commission.
Jonathan G. Katz
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