U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19804 / August 16, 2006
SEC v. Eric Walsh, John Abresch et al., United States District Court for the Southern District of Florida, Crim. No. 06-20071-CR-Moore
Former Principal of Coral Springs, Florida Broker-Dealer Which Raised Millions From Investors in a Fraudulent Securities Offering Sentenced to 57 Months in Prison and Ordered to Pay $2.6 Million in Restitution
The Securities and Exchange Commission (Commission) announced today that on July 27, 2006, Erik B. Walsh, was sentenced by the Honorable K. Michael Moore, United States District Court Judge for the Southern District of Florida, to a federal prison sentence of 57 months and ordered to pay criminal restitution in the amount of $2.6 million. Both Walsh and John Abresch, former principals of Discovery Capital, Inc., a Coral Springs broker-dealer formerly registered with the Commission, were convicted after pleading guilty to violations of the federal securities laws in connection with their role in a "boiler room" operation that fraudulently induced investors in the U.S. and Europe to invest millions. Abresch's sentencing is scheduled for September 11, 2006.
In connection with the fraudulent Discovery Capital offering, Walsh was convicted of conspiracy to commit wire fraud, mail fraud and securities fraud (18 U.S.C. § 371), and securities fraud (15 U.S.C. §§ 78j(b) and 78ff(a), 17 C.F.R. § 240.10b-5). Walsh was also convicted of one count of making false statements to the Commission (18 U.S.C. § 1001(a)(2)), in connection with the Commission's on site examination of Discovery Capital in 2002. Specifically, Walsh lied in writing to examiners in response to their questions during the examination.
In March 2002, the Commission brought an emergency action against Walsh and Abresch, charging them with violations of the antifraud and registration violations of the federal securities laws in connection with Discovery Capital's fraudulent securities offering. In that action, the United States District Court for the Southern District of Florida issued a temporary restraining order and an asset freeze to halt the on-going offering of securities by Discovery Capital. The District Court also appointed a receiver, Michael I. Goldberg, over Discovery Capital. The Commission's Complaint alleged that from at least June 2001 through the filing of the action, Discovery Capital raised approximately $2.7 million through the use of a network of primarily unlicensed sales agents using high pressure sales tactics and making misrepresentations about, among other things, Discovery Capital's growth, its affiliations with well-known brokerage firms and other institutions, and the safety of the investments. The Complaint further alleged that Walsh misappropriated investor proceeds through the use of an "off the books" account in the name of Discovery Capital.
In October 2002, by consent, the District Court permanently enjoined Walsh and Abresch from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, and enjoined Discovery Capital from further violations of Section 17(a) of the Securities Act, Sections 10(b), 15(c) and 17(a) of the Exchange Act, and Rules 10b-5, 15c1-2, 15c3-1, 17a-3, 17a-4, 17a-5, and 17a-11 thereunder. In October 2002, the Court further ordered Abresch to disgorge over $500,000, but waived payment of all but $195,000 and did not impose a civil money penalty based on Abresch's sworn financial statement and other information submitted to the Commission. In January 2003, the Court ordered Walsh to pay over $500,000 in disgorgement and prejudgment interest and imposed a $90,000 civil penalty. Subsequently, in March and April 2003, the Commission barred Walsh and Abresch, respectively, from association with a broker or dealer, and in March 2003, the Commission revoked the registration of Discovery Capital.