SECURITIES EXCHANGE ACT OF 1934
Release No. 49655 / May 5, 2004
ADMINISTRATIVE PROCEEDING
File No. 3-11343
In the Matter of Bruce Follick, Salvatore Tavolacci, Donald Brooks, Karl Donovan, Aaron Sandstrom, and Derek Shapiro |
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Order Making Findings and Imposing Remedial Sanction By Default |
The Securities and Exchange Commission ("Commission") instituted this proceeding on November 24, 2003, pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"). Bruce Follick received a copy of the Order Instituting Proceeding ("OIP") on December 2, 2003. The OIP required Respondent Follick to file an answer to the allegation within twenty days of service of the OIP. In December 2003 and January 2004, Respondent Follick asked for and received two thirty-day extensions to file an answer. In addition, on February 11, 2004, I granted a Motion To Stay The Proceedings Pending Consideration of Offers of Settlement. The stay as to Respondent Follick lapsed on March 3, 2004, when the Division of Enforcement ("Division") informed me that he had not submitted an Offer of Settlement. On April 27, 2004, the Division filed: (1) a Motion For Entry Of An Order Making Findings and Imposing Remedial Sanctions By Default Against Respondent Bruce Follick ("Motion"); (2) a Memorandum In Support Of The Motion; and (3) the Declaration of Corinne Ferraro In Support Of The Motion.
If the allegations are found to be true, the OIP authorizes the imposition of remedial sanctions appropriate in the public interest pursuant to Section 15(b) of the Exchange Act including, but not limited to, disgorgement and civil penalties pursuant to Section 21B of the Exchange Act. The Division's Motion seeks a bar from association with any broker or dealer and does not seek disgorgement or civil money penalties.
On April 30, 2004, Respondent Follick's counsel sent a letter stating that he had informed Respondent Follick that he could no longer represent him and requesting a stay in all proceedings for Respondent Follick, who has told counsel he expects to respond to the OIP after his release from a federal correctional institution on May 14, 2004.1
Findings
I DENY Respondent Follick's request for a stay of this proceeding, which has been pending for over five months. I find Respondent Follick to be in default for failing to file an answer and to respond to a dispositive motion. I find the following allegations to be true. 17 C.F.R. §§ 201.155(a), .220(f).
Respondent Follick, age forty-two, was an officer of First Fidelity Investment Management and of Exchange Online, Inc. ("Exchange Online"). Respondent Follick incorporated First Fidelity Investment Management in Delaware in May 1998. First Fidelity Investment Management has never been registered with the Commission in any capacity.
First Fidelity Financial Corporation ("First Fidelity Financial") was incorporated in Delaware in April 1998, and has never been registered with the Commission in any capacity. At all relevant times, First Fidelity Financial had no known operations or assets other than a bank account.
Exchange Online was incorporated in Delaware in May 1998, and has never been registered with the Commission in any capacity. At all relevant times, Exchange Online had no known operations or assets other than a bank account.
First Fidelity Equities, Inc. ("First Fidelity Equities"), was incorporated in Delaware in June 1998, and has never been registered with the Commission in any capacity. At all relevant times, First Fidelity Equities had no known operations or assets other than a bank account.
Amerivest, Inc. ("Amerivest"), was incorporated in Delaware in November 1998, and has never been registered with the Commission in any capacity. At all relevant times, Amerivest had no known operations or assets other than a bank account.
First Commerce Corporation ("First Commerce") was incorporated in Delaware in November 1998, and has never been registered with the Commission in any capacity. At all relevant times, First Commerce had no known assets or operations other than a bank account.
The Commission filed an action in the Southern District of New York alleging that at various times between April 1997 and May 1999, Respondent Follick acted as an unregistered broker-dealer. He solicited investors to purchase shares in private offerings of five issuers: First Fidelity Financial, Exchange Online, First Commerce, Amerivest, and First Fidelity Equities. Respondent Follick oversaw the offering of First Fidelity Financial and was one of three individuals who led the Exchange Online offering. The sales force that carried out these offerings utilized high-pressure sales tactics that included numerous material misrepresentations and omissions.
The civil complaint alleged, among other things, that the sales force falsely represented that they were calling from First Fidelity Investment Management, which they claimed was a Wall Street investment firm. False statements to investors included claims that First Fidelity Financial was a large, well-established investment bank; that Exchange Online was an internet brokerage firm targeted for takeover by America Online, Inc.; that a large Japanese bank had purchased Exchange Online and renamed it Amerivest; that First Commerce was an internet broker; and that First Fidelity Equities was an "internet company" poised to experience a dramatic rise in stock price. They falsely told investors that each issuer planned Initial Public Offerings in the immediate future. They failed to disclose that the proceeds of these offerings went to the salespeople and the directors of the issuers.
As a result of their fraudulent conduct, Respondent Follick and others, raised a minimum of $2.837 million from at least April 1997 through May 1999: $1.7 million with First Fidelity Financial, $450,000 with Exchange Online, $320,000 with First Fidelity Equities, $300,000 with Amerivest, and $67,000 with First Commerce.
On April 11, 2002, pursuant to a final judgment entered by default, Respondent Follick was permanently enjoined from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Exchange Act, and Rule 10b-5 thereunder. SEC v. Follick, 1:00-CV-4385 (S.D.N.Y.)
In a criminal action, Respondent Follick, pursuant to a plea agreement, pled guilty on March 31, 1999, to three counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5, in United States v. Follick, 1:99-CR-169 (S.D.N.Y.). The criminal indictment underlying the conviction alleged, among other things, that Respondent Follick engaged in fraudulent offerings of First Fidelity Financial, Exchange Online, First Fidelity Equities, Amerivest, and First Commerce stock. The indictment specified that Respondent Follick made numerous false statements concerning the issuers' businesses and the intended use of funds raised in the offerings. Judgment was entered against Respondent Follick on August 20, 2002, and he was sentenced to a prison term of twenty-four months followed by three years of supervised release and ordered to make restitution in the amount of $3,137,635.47.
Ruling
Based on these findings, I find the public interest requires that I ORDER, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 that Bruce Follick is barred from association with any broker or dealer.
Brenda P. Murray
Chief Administrative Law Judge
Endnotes