SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16568 / May 31, 2000
Securities and Exchange Commission v. Sterling Foster & Company, Inc., Adam Lieberman, Craig Kellerman, Frank Monroig, and Dennis Rueb, 97. Civ. 1077 (BSJ) (S.D.N.Y.)
The Securities and Exchange Commission ("Commission") today announced that, on May 24, 2000, Federal District Court Judge Barbara S. Jones denied a petition for nearly $600,000 in legal fees filed by civil class action attorneys for Sterling Foster & Company, Inc. ("Sterling Foster"), a registered broker-dealer, and its president Adam Lieberman ("Lieberman") in the Commission's action against those defendants. In its action, the Commission charged Sterling Foster, Lieberman and others with fraudulently obtaining $75 million through a massive securities fraud by, among other things, using "boiler-room" sales practices to sell micro-cap securities. The Petitioners sought payment of legal fees they generated in defending Sterling Foster and Lieberman against claims brought by investors in separate civil class actions and other litigation from funds Sterling Foster and Lieberman agreed in the Commission's action to disgorge for distribution to defrauded investors.
In order to settle the Commission's charges against them, Sterling Foster and Lieberman, on November 8, 1998, consented to the entry of final judgments ordering, among other things, that they disgorge $75,000,000, waived down to $11,496,064.21, including prejudgment interest, plus the proceeds of the sale, at fair market prices, of additional assets turned over to the United States government. Subsequently, on September 9, 1999, Petitioners Ungaretti & Harris and Joseph D'Elia filed a petition seeking to intervene in the Commission's action in order to modify the final judgments to obtain payment of their legal fees. Petitioners claimed that an asset-freeze order, which permitted Lieberman to transfer otherwise frozen funds for the payment of legal fees, entitled Petitioners to payment of their fees from the frozen funds. Petitioners also asserted an equitable claim to the disgorged funds for their work in defending Sterling Foster and Lieberman in the private investor suits. The Court rejected the Petitioners' arguments, finding that "Petitioners' attempt to lay claim to disgorged funds has no support in law or equity." In the opinion issued by the Court, Judge Jones stated in part that the asset freeze order "was clearly intended to benefit the SEC and, by extension, the victims of Lieberman's fraud" and that "Petitioners are properly viewed for what they are: unsecured creditors of Lieberman."
In its complaint filed on February 14, 1997 ("Complaint"), the Commission charged specifically, among other things, that:
Between October 1994 and the present, Sterling Foster and Lieberman, and others manipulated the price of securities of the following public companies: Lasergate Systems Inc.,
Advanced Voice Technologies, Inc., Com/Tech Communication Technologies, Inc., Embryo Development Corp., Applewoods, Inc. and ML Direct, Inc., and sold these securities at artificially inflated prices to investors.
Lieberman trained Sterling Foster representatives to induce customers to purchase these securities by using a series of "boiler-room" sales practices, including misrepresenting to customers that: (1) Sterling Foster had inside information about the issuers of these securities that was soon to be announced publicly; (2) the prices of these securities would reach certain targets within a few days; (3) registered representatives were not earning any compensation on purchases of these securities by customers; and (4) no prospectuses were available relating to these securities.
Sterling Foster and Lieberman charged customers undisclosed excessive markups of at least $75 million on the customers' purchases of these securities. Once these customers were duped into making the purchases, Sterling Foster and Lieberman prevented the customers from selling the securities.
The litigation is pending as to the other defendants, Kellerman, Monroig and Rueb.
For more information see Litigation Release No. 15261 (February 18, 1997) and No. 15971 (November 9, 1998).http://www.sec.gov/litigation/litreleases/lr16568.htm