U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20292 / September 24, 2007
SEC v. Mark Ristow et al., Civil Action No. 07-4547 (D.N.J.)
SEC Charges Three Individuals in Multi-Million Dollar Scheme To Defraud Savings Banks And Their Depositors
On September 24, 2007, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of New Jersey charging three individuals with securities fraud for participating in a decade-long scheme to defraud savings banks and their depositors in connection with the banks' conversion from mutual to stock ownership. All three defendants agreed to settle the Commission's charges.
When banks convert to stock ownership, depositors receive priority rights to purchase shares at a low price. Banking regulations and offering terms limit the number of shares a depositor may purchase and prohibit transfer of the depositor's purchase rights. The SEC's complaint alleges that, from 1994 to 2007, Mark Ristow orchestrated a scheme to circumvent the limitations on stock purchases in 23 bank conversions. Ristow made over $3 million in profits by selling the bank stock he had illegally obtained. The other defendants are Andrew Crabb, Ristow's cousin, and Susan Gitlin, Ristow's sister-in-law. In return for a share of the profits, they assisted Ristow by acting as his nominees, thus enabling Ristow to purchase even more shares. Because the offerings were oversubscribed, the defendants' fraud harmed legitimate depositors who received fewer shares than they otherwise would have.
More specifically, the defendants named in the Commission's complaint are:
Mark Ristow, age 62, a resident of Indianapolis, Indiana. He is a retired real estate investor and property manager. He received a Master of Business Administration from Harvard Business School in 1971.
Andrew Crabb, age 41, and a resident of Mechanicstown, Ohio. He is employed as an engineer for an environmental consulting firm. Crabb is Ristow's cousin and lived in New Jersey during the relevant period.
Susan Gitlin, age 49, and a resident of Norfolk, Virginia. She is a medical research scientist and an assistant medical school professor. Gitlin's sister is married to Ristow.
The Commission's complaint alleges as follows:
The defendants deliberately evaded federal and state banking regulations designed to ensure that when a bank converts to stock ownership, each of the bank's depositors has a fair chance to purchase stock before other interested investors do so. These and other applicable regulations and the offering terms contained in the converting banks' prospectuses imposed maximum purchase limits and prohibited the transfer of depositors' purchase rights. To ensure that only depositors benefit from their priority purchase rights, federal and state banking regulations prohibit depositors from transferring ownership of their purchase rights or from entering into any agreement regarding the sale or transfer of shares purchased in the offering.
Ristow funded the opening of accounts in his own name and the names of Crabb and Gitlin at mutual savings banks throughout the country in the hope that they would convert to stock ownership. When any of the banks undertook a conversion, Ristow secretly funded his nominees' stock purchases, controlled the sale of his nominees' shares and retained most of the trading profits. Ristow also had the nominees submit stock order forms in which they falsely certified to the banks that they were purchasing the stock for their own account and had no agreement to transfer the shares or the proceeds of their sale. Ristow caused his nominees to make these material misrepresentations in 23 public stock offerings by banks. The 23 offerings were oversubscribed, and the defendants' misconduct therefore limited the amount of stock available to legitimate depositors, some of whom received less stock than they requested or were completely shut out. Ristow and his nominees made over $3 million from the scheme at the expense of other depositors.
Crabb and Gitlin knowingly played a key role in carrying out the scheme, and profited from their own misconduct. Crabb and Gitlin worked with Ristow to set up as many accounts as possible on Ristow's behalf. To satisfy in-state residency requirements, Crabb and Gitlin opened multiple accounts in their names for Ristow at banks in their respective home states, New Jersey and Virginia. Crabb spent over a decade traveling around New Jersey opening accounts for Ristow and using his own home address for those accounts to avoid arousing suspicion. To help Ristow open an account at a New Jersey-based credit union, Crabb had his New Jersey consulting firm join the credit union and then sent the credit union a phony letter on his firm's letterhead offering Ristow a position with the firm.
All three defendants are charged with violating Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In the complaint, the Commission seeks permanent injunctive relief, disgorgement and civil penalties. Each of the defendants, without admitting or denying the allegations of the Commission's complaint, has consented to the entry of a permanent injunction against violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, all three of the defendants have agreed to settle the SEC charges by consenting, without admitting or denying the complaint's allegations, to the entry of permanent antifraud injunctions. In addition, Crabb will disgorge $98,628 in profits he made from the scheme, plus prejudgment interest, and pay a civil penalty in the amount of $100,000. Gitlin will disgorge $164,761 in profits, plus prejudgment interest, and pay a civil penalty in the amount of $75,000. Because Ristow has already agreed to forfeit an amount equivalent to his ill-gotten gains in conjunction with his guilty plea in the parallel criminal case, the consent judgment in the SEC case does not require disgorgement of those same ill-gotten gains. The Commission's claim for a civil penalty against Ristow will remain pending.
In a parallel criminal proceeding, the United States Attorney's Office for the District of New Jersey has announced that it filed criminal charges against Ristow for the same conduct. Earlier today, Ristow agreed to pay a total of $2.85 million in forfeiture, representing his own illegal profits from the scheme.
The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the District of New Jersey, the Federal Deposit Insurance Corporation, the Internal Revenue Service, the Federal Bureau of Investigation and the U.S. Postal Inspection Service in this matter.