Securities and Exchange Commission
Litigation Release No. 16291 / September 23, 1999
SECURITIES AND EXCHANGE COMMISSION v. JEROME BECHSTEIN, Civil Action No. 3:99CV7591, U.S. District Court for the Northern District of Ohio, filed on September 21, 1999
The Commission announced that, on September 21, 1999, a Complaint was filed in the U.S. District Court for the Northern District of Ohio, Western Division, against Jerome Bechstein, a resident of Bowling Green, Ohio, for engaging in fraud in the offer and sale of securities and for aiding and abetting Towne Bancorp, Inc.'s ("Towne Bancorp") violations of reporting requirements. The Complaint alleges that Bechstein, as the president and a director of Towne Bancorp, knowingly made material misrepresentations and omitted to state material facts to investors during the company's registered "mini-max" initial public offering of stock and aided and abetted Towne Bancorp's filing of materially misleading and incomplete reports with the Commission.
The Commission alleges that in April 1992, Towne Bancorp, located in Perrysburg, Ohio, filed a Form S-1 Registration Statement (the "Registration Statement") with the Commission under Section 6 of the Securities Act. The Registration Statement contained a prospectus, signed by Bechstein, for a mini-max initial public stock offering. The purpose of the offering was to raise enough capital to open a bank. The offering, as amended, required the subscription of at least 320,000 shares of common stock, at a price of $12.50 per share, for a total minimum subscription amount of $4 million to be raised by June 30, 1994 (the "Termination Date"). The prospectus stated that if $4 million was not subscribed by the Termination Date, subject to an extension by Towne Bancorp, the offering would terminate and all funds paid by the subscribers would be returned with interest. Bechstein sold subscriptions of stock to investors located in various states.
The Commission further alleges that Towne Bancorp failed to raise $4 million by the June 30, 1994 Termination Date and did not extend the offering. Thus, Towne Bancorp, through Bechstein, was required to return all funds to investors. However, Bechstein failed to return funds to investors and improperly continued to sell Towne Bancorp stock subscriptions through at least November 1995. Further, Bechstein failed to disclose to investors that the offering was not extended past the Termination Date; that investors' funds were not returned as promised; and that Towne Bancorp, thus, had a significant outstanding liability. Bechstein improperly continued to sell subscriptions until November 1995, when Towne Bancorp broke escrow and received all of the funds raised.
In addition, the Commission alleges that Bechstein filed on behalf of Towne Bancorp materially misleading and incomplete reports with the Commission. In Towne Bancorp's Forms 10-KSB and Forms 10-QSB filed with the Commission between May 13, 1996 and March 31, 1997, the company did not disclose that it violated the provisions of the offering due to its failure to return funds to investors and that it, thus, had a significant outstanding liability. It was not until May 7, 1997, that Bechstein acknowledged for the first time in Towne Bancorp's Form 8-K that a liability of at least $4,753,471 existed.
The Commission alleges that Bechstein violated the antifraud provisions of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"). Specifically, the Commission alleges that Bechstein violated Sections 5(b), 10(a)(3) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rules 10b-5 and 10b-9 promulgated thereunder. The Commission also alleges that Bechstein aided and abetted Towne Bancorp's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. The Commission seeks the imposition of a permanent injunction and a civil penalty against Bechstein.