Litigation Release No. 16320 / September 30, 1999

SEC Files Suit Against Two Sales Agents in Friendly Power Case

Securities and Exchange Commission v. Jeffrey S. Richman and Stephen P. Erlich, Case No. 99-2620-CIV-KING (S.D. Fla.)

The Securities and Exchange Commission (SEC) announced that on September 29, 1999, it filed a civil complaint against two individuals who it alleges participated in the fraudulent telemarketing of unregistered securities in Friendly Power Company (Friendly Power). The SEC's lawsuit comes less than five months after United States District Judge James L. King ordered the principals of Friendly Power to pay $2.6 million in disgorgement and penalties for their roles in the Friendly Power scheme.

The SEC alleges that Jeffrey S. Richman (Richman) of Coral Springs, Florida, and Stephen P. Erlich (Erlich) of Hollywood, Florida, operated boiler-room telemarketers that sold unregistered Friendly Power securities to the public between November 1997 and July 1998. According to the SEC's complaint, Richman's boiler-room, Miami Lakes, Fla.-based Rich Management Corp. (Rich Management), and Erlich's boiler-room, LGS, Inc., also based in Miami Lakes, raised over $5.5 million by selling the Friendly Power securities to investors, many of whom were elderly and unsophisticated individuals that used retirement funds to pay for their investments. The SEC alleges that in connection with those sales, Richman and Erlich made, or instructed sales agents they employed to make, egregious misrepresentations to investors regarding, among other things, Friendly Power's risk, profitability, the need to invest quickly and investors' returns. The SEC alleges that in return for selling the Friendly Power securities, Erlich received commissions of more than $325,000 in just eight months.

The SEC alleges that through their conduct, Richman and Erlich violated the securities and broker-dealer registration provisions and the antifraud provisions of the federal securities laws. Specifically, the SEC alleges that Richman and Erlich violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act and Rule 10b-5 thereunder. The SEC's action seeks, among other things, permanent injunctive relief, disgorgement and penalties against Richman and Erlich.

The SEC also announced that simultaneously with the filing of its complaint, Richman agreed to settle the action against him by consenting, without admitting or denying any of the allegations contained in the SEC's complaint, to the entry of a permanent injunction from future securities law violations. Richman will also pay disgorgement of $398,966.80 in ill-gotten gains. Under the terms of the settlement, Richman will partially satisfy payment of the disgorgement amount by relinquishing possession of all bank accounts and other assets held by Rich Holdings, Inc., a company that Richman established to receive his commission payments from Rich Management. Those assets amount to more than $131,000. The remaining disgorgement amount will be waived, and the SEC will not seek civil penalties, due to Richman's financial inability to pay.