U.S. Securities and Exchange Commission
Litigation Release No. 21814 / January 14, 2011
Accounting and Auditing Enforcement Release No. 3231 / January 14, 2011
SEC v. Joseph D. Radcliffe and Michael J. Radcliffe, Civil Action No. 1:11-cv-00091 (RBW) (D. D.C. Jan. 14, 2011)
SEC Charges Father and Son in Financial Fraud at Sports Memorabilia Company
The Securities and Exchange Commission ("Commission") today charged Joseph D. Racliffe and his son Michael J. Radcliffe, both of Elka Park, New York, with operating a financial fraud at Image Innovations Holdings, Inc. ("Image"), a public company that dealt in sports memorabilia. The Commission also charged Joseph Radcliffe with illegal insider trading.
The Commission's complaint, which was filed in the United States District Court for the District of Columbia, alleges that Michael Radcliffe was a Director of Image and the Chief Operating Officer of its operating subsidiary, and he signed the company's financial reports. Joseph Radcliffe, who held himself out as a "consultant" for the company, actually controlled the operations of the company. According to the Commission's complaint, in 2004 and 2005, Joseph and Michael Radcliffe engaged in a scheme in which they created fictitious sales of company merchandise, which were recorded in the company books and records as revenue. The Radcliffes used false invoices and other documentation to disguise the fact that the sales were phony. The Commission further alleges that the revenue reported from the fictitious sales was included in the company's financial reports, which were disseminated to the public and filed with the Commission. In 2004, Image reported about $6.1 million in revenue. For the first quarter of 2005, Image reported about $464,502 in revenue. About 92 percent of that reported revenue in 2004 and 2005 was fabricated by Joseph and Michael Radcliffe. In addition, Joseph Radcliffe sold shares of the Company at prices inflated by the fraud while in possession of material, nonpublic information regarding the Company's true financial performance and without registering the sales as required by the securities laws. The Radcliffes obtained a total of at least $965,000 from the financial fraud and illegal stock sales. The fraudulent scheme eventually came to light when a newly-hired company officer questioned the company's revenue figures.
Joseph and Michael Radcliffe agreed to settle the Commission's charges without admitting or denying the allegations against them. The proposed settlements are subject to the court's approval
Joseph Radcliffe agreed to pay $955,000 in disgorgement, $299,541 in prejudgment interest, and $175,000 in civil penalty. He also consented to a final judgment enjoining him from violating Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 ("Securities Act"); Section 10(b) of the Securities Exchange Act ("Exchange Act") and Rule 10b-5 thereunder; and, as a "controlling person" under Exchange Act Section 20(a), from violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
Michael Radcliffe agreed to pay $10,000 in disgorgement, $3,060 in prejudgment interest, and $75,000 in civil penalty. He also consented to a final judgment enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.