UNITED STATES SECURITIES AND EXCHANGE COMMISSION LITIGATION RELEASE NO. 15075 / September 26, 1996 ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 825 / September 26, 1996 SECURITIES AND EXCHANGE COMMISSION v. CHRISTOPHER KENT BAGDASARIAN AND SAM LANCE WHITE Civil Action No. 96-CV-7306 (S.D.N.Y.) The Securities and Exchange Commission today filed a civil fraud action against Christopher Kent Bagdasarian and Sam Lance White in the United States District Court for the Southern District of New York. The Commission's complaint alleges that Bagdasarian, Normandy America Inc.'s CEO and Chairman of the Board, and White, a tax partner in Deloitte & Touche LLP's Los Angeles office at the time of the fraud, engaged in a fraudulent scheme to fabricate Bagdasarian's investment track record that was included in the registration statement for Normandy's $200 million initial public offering. Normandy was a reinsurance company with no financial or operating history whose business plan depended on its ability, through Bagdasarian, successfully to invest reinsurance premiums in equity securities. Normandy's stock commenced trading on the NASDAQ National Market System on August 15, 1995. One day later, Normandy withdrew its offering from the market and rescinded all trades. The Commission's complaint alleges that the underwriters told Bagdasarian, White and others that the offering could not be sold without substantial disclosure concerning Bagdasarian's past investment results. Normandy's registration statement represented that Bagdasarian, a thirty-year old money manager, had achieved a ten-year average annual return of 29.1%, managing assets ranging from $250.6 million in 1990 to $731.3 million during 1994. The registration statement also represented that Bagdasarian's performance results were based on all of the assets that he managed and resulted solely from his own investment decisions. The complaint alleges that each of these statements was materially false and misleading because Bagdasarian and White fabricated the assets and the investment results. According to the complaint, Bagdasarian and White told the underwriters that the $731 million in assets managed by Bagdasarian were located in offshore structures that Deloitte created. When the underwriters requested further information concerning the offshore structures, White refused to provide it, maintaining that to do so would reveal information proprietary to Deloitte. The complaint alleges that, in fact, there were no such offshore structures managed by Bagdasarian or created by Deloitte. The complaint further alleges that in order to enhance the credibility of his claimed investment results, Bagdasarian ==========================================START OF PAGE 2====== engaged White and Deloitte to verify those results. The complaint alleges that White accepted the engagement for Deloitte, in violation of Deloitte's internal policies, and issued four letters to the underwriters which represented that Deloitte had verified Bagdasarian's investment results disclosed in Normandy's registration statement. According to the complaint, White also disregarded Deloitte's internal policies in issuing the letters. The complaint alleges that Bagdasarian and White knew that the disclosed assets did not exist, and that neither White nor any other Deloitte personnel performed any work to verify their existence. According to the complaint, between 1991 and 1995, Bagdasarian obtained over twelve million dollars in unsecured lines of credit from a New York bank by making false statements concerning his ownership of securities. White verified Bagdasarian's false statements in quarterly letters to the bank. Bagdasarian used the lines of credit to purchase a jet airplane, furnish his six million dollar home and fund his investment activities. The complaint further alleges that, after the underwriters informed Bagdasarian that they wanted to interview an investor who had substantial assets under his management, Bagdasarian arranged a sham interview and directed an employee of one of his affiliated entities to impersonate one of his investors. The underwriters conducted the interview, but the real person whom Bagdasarian had described as the investor never spoke with any of the underwriters' representatives and had never heard of Normandy. The complaint alleges that, in fact, the employee of Bagdasarian's affiliated entity impersonated the investor. According to the complaint, Bagdasarian and White falsely represented that all of the assets Bagdasarian managed had been included in Normandy's registration statement, and that Bagdasarian had sole authority to make investment decisions for those assets. In fact, the complaint alleges, as of December 31, 1994, Bagdasarian managed approximately $45 million about which the registration statement failed to disclose anything at all, and in particular failed to disclose that Bagdasarian made investment decisions with other individuals regarding assets he managed through Criterion Holdings Inc. and its affiliates. The complaint requests the Court to enter permanent injunctions against future violations by the defendants of the antifraud provisions of the federal securities laws, to impose civil monetary penalties against Bagdasarian and White, and to bar Bagdasarian from acting as an officer or director of any public company. On September 26, 1996, the United States Attorney for the Southern District of New York announced criminal proceedings ==========================================START OF PAGE 3====== against Bagdasarian and White arising from the Normandy America offering and from Bagdasarian's receipt of bank loans based on false statements about his assets and investment returns. White was indicted for securities fraud (one felony count), bank fraud (five felony counts), conspiracy (one felony count), and perjury in connection with his sworn testimony to the Commission staff (one felony count). The United States Attorney filed an information against Bagdasarian, alleging securities fraud (one felony count), bank fraud (five felony counts), conspiracy (one felony count), and perjury in connection with his sworn testimony to the Commission staff (one felony count). The Commission's investigation is continuing.