U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19494 / December 15, 2005
Accounting and Auditing Enforcement
Release No. 2357 / December, 15, 2005
Securities And Exchange Commission v. Edward A. Heil and R. Bret Jenkins Civil Action No. CV 05 5852 (United States District Court for the Eastern District of New York) (Judge Hurley)
Securities And Exchange Commission v. eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) and Raymond Burghard, Civil Action No. CV 05 5851 (United States District Court for the Eastern District of New York) (Judge Hurley)
Securities And Exchange Commission Files Charges in Fraud Involving eSafetyWorld, Inc.
Former CEO and CFO Consent to Injunctions, Officer and Director Bars, and Penalties
On December 15, 2005, the SEC filed two civil injunctive actions in federal district court for the Eastern District of New York related to fraudulent schemes perpetrated at eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) ("eSafety").
The first complaint alleges that Edward A. Heil and R. Bret Jenkins, respectively eSafety's CEO and CFO at the relevant time, engaged in fraudulent schemes in 2001 involving a false press release, financial fraud, and/or a market manipulation. The complaint alleges that:
- During the mailed-anthrax scare, Heil drafted and issued eSafety's October 19, 2001 false press release about a supposed revolutionary anthrax-containment device. The press release caused a one-day price increase of 413% and a volume increase of 57,085%.
- Heil devised, and Heil and Jenkins implemented, eSafety's revenue recognition policy for consulting services which was contrary to GAAP. They also failed to restate eSafety's first through third quarter 2001 reports, improperly deferred costs in eSafety's 2001 Form 10-KSB thereby understating net loss, and aided and abetted eSafety's electronic filing violations.
- In 2001, in order to manipulate the stock of eSafety, Heil directed the purchase and sale of eSafety stock and transferred $473,288 in eSafety funds to an entity that he controlled and another entity.
- Heil executed a false loan agreement and provided eSafety's auditors with a false loan confirmation to conceal the use of monies in the manipulation.
Heil and Jenkins each have agreed to settle the complaint by consenting, on a neither admit nor deny basis, to the entry of an injunction based on the anti-fraud, books and records, internal controls and electronic signature provisions of the federal securities laws. Heil's injunction is based on violations of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder; and his aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 13a-1, 13a-13, 12b-20, and 12b-25 thereunder, and Section 232.302 of Regulation S-T. Jenkins' injunction is based on violations of Section 13(b)(5) of the Exchange Act; and his aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 13a-1, 13a-13, 12b-20, 12b-25, 13b2-1 and 13b2-2 thereunder, and Section 232.302 of Regulation S-T. They each also agreed to a 10-year officer and director bar. Heil will pay a penalty of $60,000 and Jenkins will pay a penalty of $50,000.
In a separate but related action, Heil has offered to settle an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by accepting a bar from practicing before the Commission as an accountant with a right to request reinstatement in five years.
In the second federal court action, the Commission alleges that eSafety engaged in each of the fraudulent schemes described above, and that Raymond Burghard aided and abetted eSafety's financial fraud by signing a false loan agreement and a false loan confirmation that he knew would be provided to eSafety's auditors. In so doing, the Commission alleges that Burghard aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-1, 13b2-1, and 13b2-2 thereunder.
The Commission seeks injunctive relief and penalties from eSafety and Burghard.