SECURITIES AND EXCHANGE COMMISSION Washington, D.C. LITIGATION RELEASE NO. 15153 / November 7, 1996 SECURITIES AND EXCHANGE COMMISSION v. CHARLES O. HUTTOE, ET AL., Civil Action No. 96-CV-02543 (GK)(D.D.C.) The Securities and Exchange Commission ("Commission") announced the filing today of a Complaint and Applications for a Temporary Restraining Order, Preliminary Injunction and other emergency relief against Charles O. Huttoe ("Huttoe"), Huttoe & Associates, Inc., Word Corporation, National Trading Services, Inc. ("NTSI"), Karen Purvis, also known as Karen Purvis Huttoe ("Purvis"), Tammy Jo Perkins ("Perkins"), Josephine Brooks ("Brooks"), SGA Goldstar Research Inc. ("SGA"), Theodore R. Melcher, Jr. ("Melcher"), Shannon B. Terry ("Terry"), Systems of Excellence, Inc. ("SOE"), Alpha Securities Ltd. ("Alpha"), and Dunbar Holdings Ltd. ("Dunbar") in the United States District Court for the District of Columbia. The Complaint alleges a massive and ongoing market manipulation orchestrated by Huttoe, Chairman of the Board and Chief Executive Officer of SOE, a manufacturer and distributor of video teleconferencing equipment with offices in McLean, Virginia and Coral Gables, Florida. The Commission alleges that Huttoe secretly distributed millions of SOE shares to his family members and corporations, manipulated the market by issuing false favorable information concerning SOE and its business, and then sold his shares into the inflated market. In particular, according to the Commission, as the first part of that scheme Huttoe executed an unregistered distribution of tens of millions of shares of SOE stock by causing a series of false purported Form S-8 registration statements to be submitted to SOE's transfer agent begining in March, 1995. Huttoe secretly issued millions of those unregistered but unrestricted and free trading SOE shares to various Huttoe family members and entities that served as Huttoe's nominees, including defendants Word Corporation, NTSI, Purvis (his wife), Brooks (his mother) and Perkins (his niece). According to the Commission, as the second step in the scheme, Huttoe artificially inflated the price of SOE shares by issuing a series of materially false and misleading press releases that, among other things, announced nonexistent multimillion dollar sales of SOE products, an acquisition that had not occurred, and revenue projections for SOE that were without any basis. The Complaint also alleges that as further efforts to inflate the price of SOE securities, Huttoe caused SOE to fail to file required periodic reports and to file false periodic reports with the Commission, and bribed SGA with stock to recommend SOE to subscribers to SGA's electronically disseminated tout sheet. The Commission alleges that Huttoe caused unregistered but free trading shares to be issued to Melcher and Terry, SGA's principals, some of which were issued in the names of Alpha and Dunbar, entities they control. The ==========================================START OF PAGE 2====== Complaint further alleges that as the third step in the scheme, Huttoe, Melcher, and Terry then took advantage of the inflated market for SOE stock that they had created by dumping their own SOE stock on unwitting investors. The Commission alleges that those sales were timed to take advantage of the false news concerning SOE, and were heaviest when SOE stock reached its highs in June, 1996. The Commission alleges that as a result of this scheme, the defendants obtained illegal proceeds of more than $10 million. The complaint further alleges that Huttoe engaged in a massive coverup after SOE's auditors discovered evidence of his unregistered distribution of securities, and raised questions concerning it in mid-September, 1996. The Complaint alleges that over the course of the weekend of September 21-22, 1996, Huttoe orchestrated the fabrication and forgery of fraudulent "consulting agreements" that purported to be the consideration for nearly 40 million shares that had been issued pursuant to purported Form S-8 registration statements. The Complaint alleges that Huttoe retained a new auditor for SOE that Saturday, and that on the same day the new auditor rendered a clean opinion on SOE's financial statements. The Complaint alleges that on Monday, September 23 SOE filed a materially false Form 10-K that included the false accountant's report, and a materially false Form 10-Q. The Complaint alleges that the following day SOE filed sixteen materially false registration statements on Form S- 8 that purported to cover the shares distributed months before, and that included as attachments the forged "consulting agreements." As a result, the Complaint alleges that Huttoe violated Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, 13b2-2, 16a-2, and 16a-3 thereunder; Huttoe & Associates, Inc., Word Corporation, and NTSI violated Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; Purvis, Perkins, and Brooks violated Section 5 of the Securities Act; SGA, Melcher, Terry, Dunbar, and Alpha violated Sections 5, 17(a) and 17(b) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act; and SOE violated Sections 5 and 17(a) of the Securities Act and Sections 10(b), 13(a), and 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The Commission applied to the Court for orders that would, among other things, temporarily restrain defendants from violating the federal securities laws; temporarily freeze assets and accounts of defendants other than SOE; require Huttoe to temporarily surrender his passport and refrain from foreign travel; and direct defendants, other than SOE, to file an accounting. The Complaint seeks permanent injunctions against violations of the relevant provisions of the securities laws by ==========================================START OF PAGE 3====== defendants and disgorgement by defendants of illegal gains, together with prejudgment interest. ==========================================START OF PAGE 4====== On October 7, 1996, the Commission issued an Order suspending trading in SOE securities for ten days. See Securities Exchange Act Rel. No. 37791 (October 7, 1996). The Commission's investigation in this matter is continuing.