U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19894 / October 31, 2006
SEC v. Hubert A. Jeffreys, a/k/a Hugh Jeffreys, Earthboard Sports USA, Inc., Timothy F. Bell and Tracy A. Edwards, Civil Action No. 1:05CV00372 (RWR) (D.D.C.)
SEC Settles Charges against Hubert A. Jeffreys and Two Stock Brokers for Fraudulent Sales of Earthboard Stock
The Securities and Exchange Commission announced that on October 11, 2006, the Honorable Richard W. Roberts, U.S. District Court Judge for the District of Columbia, entered Final Judgments against Hubert A. Jeffreys, Timothy F. Bell and Tracy A. Edwards for the fraudulent offer and sale of stock of Earthboard Sports USA, Inc., a privately held, Costa Mesa, California-based manufacturer of all-terrain skateboards. Without admitting or denying the allegations in the Commission's complaint, the defendants agreed to separate settlements which, among other things, prohibit Earthboard founder and president Jeffreys from serving as an officer or director of a publicly traded company and bar Bell and Edwards from association with any broker or dealer. On April 18, 2006, Jeffreys was sentenced to 41 months imprisonment and ordered to pay $2,037,900 in restitution in a parallel criminal action.
In its complaint filed February 24, 2005, the Commission alleged that between April 1998 and March 2003, Jeffreys raised approximately $5.1 million from at least 66 individuals and entities in an unregistered offering of Earthboard stock. Jeffreys, along with Bell and Edwards, two registered representatives recruited by Jeffreys to sell shares, enticed investors to purchase Earthboard shares using a number of materially false claims. Of greatest significance, they told prospective investors that Vans Inc., a Nasdaq-traded footwear company, planned to acquire Earthboard in a one-for-one share exchange that would generate a windfall of as much as $24 for each dollar invested in Earthboard stock. In reality, Vans never had any dealings of any kind with Earthboard; Jeffreys made up the acquisition in order to fraudulently induce investors to purchase Earthboard stock. The Commission's complaint furthermore alleged that Bell and Edwards misappropriated investor funds earmarked for investment in other private placement stocks.
Without affirming or denying the allegations in the Commission's complaint, Jeffreys consented to the entry of a Final Judgment permanently enjoining him from violating Sections 5(a), 5(c), and 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. The Final Judgment also prohibits Jeffreys from serving as an officer or director of any public company. In light of Jeffreys' 41 month prison sentence and order to pay $2,037,900 in restitution in the criminal case, the Final Judgment dismisses the Commission's disgorgement, prejudgment interest and penalties claims against him. See USA v. Jeffreys, Crim. Action No. 05-CR-184 (C.D. Cal.). The Commission dismissed its claims against Earthboard as it is no longer in existence.
Earthboard stock salesmen Bell and Edwards, without affirming or denying the allegations in the Commission's complaint, each consented to the entry of a Final Judgment permanently enjoining him from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Final Judgment against Bell finds him liable for disgorgement of $401,302 plus prejudgment interest of $105,918, but based on his inability to pay as documented by sworn financial statements and other documents he submitted to the Commission, orders payment of $20,000 plus post-judgment interest, waives the balance for which he is liable, and does not impose a civil penalty. Likewise, Edward's Final Judgment finds him liable for disgorgement of $91,517 plus prejudgment interest of $24,154, but based on his inability to pay as documented by sworn financial statements and other documents he submitted to the Commission, orders payment of $15,000 plus post-judgment interest, waives the balance for which he is liable, and does not impose a civil penalty. In separate administrative proceedings, Bell and Edwards each consented to the entry of an order barring him from association with any broker or dealer.
See also: L.R. No. 19098 (February 24, 2005).