UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16169 / May 28, 1999
Court Imposes $2.6 Million in Penalties and Disgorgement
On Husband And Wife For Selling Unregistered Securities
Securities And Exchange Commission v. Friendly Power Co., LLC, Friendly Power Co., Inc., Friendly Power Franchise Co., Scott J. Levine, Sabrina Levine and Dwight Stephens, Case No. 98-2902-CIV-KING (S.D. Fla.)
The Securities and Exchange Commission (SEC) announced today that on Wednesday, May 12, 1999, the Honorable James Lawrence King of the United States District Court for the Southern District of Florida imposed $200,000 in penalties against Scott and Sabrina Levine (the Levines), the principals of Miami-based Friendly Power Company (Friendly Power), finding that they blatantly and inexcusably violated Section 5 of the Securities Act of 1933 by participating in a scheme to sell unregistered securities to the investing public. The $100,000 penalty imposed upon each of the Levines is part of a final judgment following a four-day trial in April 1999, and the SEC's institution of an emergency action in July 1998 against the Levines, Friendly Power, and a network of Florida-based telemarketers. After the Commission filed its emergency action, the Court halted what the Commission alleged to be the fraudulent sales of the unregistered Friendly Power securities by the telemarketers, and froze Friendly Power's funds. The Court's final judgment also enjoins the Levines, who the Court noted have a pattern of past and present questionable business practices, from offering or selling unregistered securities, and ordered them to disgorge $2.4 million that they raised from the public.
The Court's decision found that in 1997, the Levines launched Friendly Power in order to enter the recently deregulated utility industry in the state of California. In a "deliberate scheme through which they sought investors in such a way as to avoid the securities laws," the Levines raised money for Friendly Power by selling franchises in the company to a network of telemarketers on credit. Individual investors, however, paid the franchise fee by purchasing investments, called "partnership units," in general partnerships sold by the telemarketers. By the time the Commission brought its emergency action in July 1998, Friendly Power had received $2.4 million from the sale of these partnership units to 308 investors, and the Commission alleged that the Levines would have raised $70 million from the public. The Court found that the Levines, "as the sole owners of [Friendly Power] clearly were substantial factors in the conception and planning of the scheme by which partnership units were to be sold in the franchises, such that the securities laws might be avoided."
The Court determined that the scheme put in place by the Levines relied on individuals to invest passively for the benefit of Friendly Power and the telemarketing operations, and that the investors could not meaningfully control the profitability of their franchise. Furthermore, the Levines' failure to register their securities with the SEC created a substantial risk that the investors would lose their investments. In early August 1998, shortly after the SEC brought its emergency action, Friendly Power ceased supplying power to its customers.