UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 15731 / May 4, 1998
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1033 / May 4, 1998
SECURITIES AND EXCHANGE COMMISSION V. ARTHUR L. TOLL, BRUCE B. EDMONDSON, GERALD LEVINSON AND ELLIOT S. FISHER, 98-CV-2325 (RSG) (E.D. Pa.)
NEW YORK -- The Securities and Exchange Commission announced the filing of a complaint on May 4, 1998 in United States District Court for the Eastern District of Pennsylvania, alleging securities fraud and other violations by the former officers and directors of Regal Communications Corporation. Regal, now defunct, was a public company based in Fort Washington, Pennsylvania, where it engaged in telephone "900" services and television infomercial marketing. Named as defendants were:
! Arthur L. Toll, 51, a resident of Ambler, Pennsylvania and Regal's former chief executive officer, chairman of the board of directors, and majority shareholder;
! Bruce B. Edmondson, 54, a resident of Brandon, Florida and Regal's former chief financial officer and member of the board of directors and its audit committee;
! Gerald Levinson, 67, a resident of Ambler, Pennsylvania and a former member of Regal's board of directors and its audit committee; and
! Elliot S. Fisher, 56, a resident of Fort Washington, Pennsylvania and a former member of Regal's board of directors and its audit committee, in-house legal counsel, and corporate secretary.
The Commission's Complaint alleges as follows:
From March 1992 through December 1993, Toll, Edmondson, Levinson and Fisher (collectively, the "Defendants") each knowingly or recklessly made materially false and misleading statements, and omitted to state material information, in numerous periodic reports and registration statements that they signed and that Regal filed with the Commission. During the time that these reports and registration statements were publicly available, Regal's stock traded over the NASDAQ. In addition, Regal used the false reports and registration statements in connection with a July 1993 $35 million debenture offering, the March 1993 acquisition of two companies and the September 1993 acquisition of Inphomation, Inc., an infomercial production and marketing company.
The Defendants allegedly engaged in the following fraudulent conduct that resulted in the falsification of Regal's financial condition as reported in Regal's public filings: Edmondson, Regal's chief financial officer, caused Regal's accounting staff to record fictitious business revenues and receivables into Regal's general ledger. Edmondson and Toll, Regal's chief executive officer, supported these fictitious items with false or misleading sales documents and bank records. To lend credibility to the false information, Edmondson and Toll paid off many of the receivables with Regal's own money. They circulated over $23 million from Regal's checking accounts into the accounts of companies privately-owned by them. They then caused the private companies to funnel a substantial portion of the money back to Regal in amounts equal to the amounts of the fictitious revenues and receivables. Levinson circulated Regal's funds through one of the private companies. Levinson also diverted Regal's funds to Toll and Edmondson personally. Fisher created documents that concealed Toll's and Edmondson's ownership of one of the private companies. Fisher also arranged for another of the private companies to obtain approximately $1.6 million worth of Regal stock, which was sold and used to pay off one of the fictitious receivables. The Defendants' fraud inflated Regal's revenues and receivables, thereby causing Regal's recorded income and assets to be materially overstated in reports and registration statements filed with the Commission from July 9, 1992 through August 10, 1993.
As a result of the fraud, the Defendants received ill-gotten gains totalling over $2.2 million. Toll and Edmondson personally profited from their fraud by, among other things, selling millions of dollars worth of stock at prices inflated by the fraud. Levinson and Fisher personally profited through undisclosed payments from the private companies.
The Defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and are also liable pursuant to Section 20(a) of the Exchange Act as controlling persons of Regal for Regal's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains, civil money penalties, an order barring Toll and Edmondson from positions as officers or directors of public companies, and other relief.