SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16632A / July 21, 2000
SECURITIES AND EXCHANGE COMMISSION v. CHARLES O. HUTTOE, ET AL., Civil Action No. 96-02543 (GK) (D.D.C.)
FINAL THREE DEFENDANTS IN SYSTEMS OF EXCELLENCE LITIGATION SETTLE AND ORDERED TO PAY MORE THAN $2 MILLION FOR TOUTING AND DISSEMINATING MISLEADING INFORMATION IN INTERNET STOCK NEWSLETTER
The Securities and Exchange Commission ("Commission") announced that on July 7, 2000, Judge Gladys Kessler issued an order implementing a settlement with Theodore R. Melcher, Jr., SGA Goldstar Research, Inc., and Alpha Securities, Ltd. (collectively the "Melcher Defendants"), the remaining three defendants in SEC v. Charles O. Huttoe, et al. The Melcher Defendants agreed, without admitting or denying the Commission's allegations, to consent to permanent injunctions against future violations of the securities laws and to disgorge millions of dollars of unlawful proceeds. Melcher previously pled guilty to criminal charges arising from the same conduct. The settlement with the Melcher Defendants concludes the original civil litigation filed by the Commission in 1996 in response to the massive market manipulation perpetrated by Systems of Excellence, Inc. and others.
It its complaint and amended complaint, the Commission alleged the following as to the Melcher Defendants:
The Melcher Defendants agreed to settle the Commission's action, without admitting or denying the Commission's claims against them, by consenting to a permanent injunction against future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 17(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 10b-5. As part of the settlement, the Melcher Defendants agreed to disgorge, jointly and severally, $3,300,015 plus prejudgment interest thereon; provided however, that after disgorging certain assets, including cash, securities, and real estate that are in the aggregate worth over $2 million, the remainder of their disgorgement obligation will be waived based upon their inability to pay more as demonstrated by the representations in their sworn financial statement. Including assets to be disgorged by the Melcher Defendants, the Commission will have recovered approximately $11 million from its enforcement actions related to the Systems of Excellence fraud. The Court-appointed Receiver is holding these funds for distribution to defrauded investors. The Commission and the Receiver hope to file a plan of distribution for the Court's approval within the next several months.
To date, six individuals have pleaded guilty to felony charges stemming from these matters and have been sentenced as follows:
In a related matter, on May 30, 2000, the Commission revoked the registration of the common stock of Systems of Excellence, Inc. pursuant to Section 12(j) of the Exchange Act. The Order imposing the deregistration of SOE stock found that SOE failed to comply with Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-1, 13a-11, and 13a-13 thereunder. Deregistration of SOE's securities will prevent further parties from acquiring the now defunct company and using its securities for use in future manipulations.
This enforcement action is part of the Commission's four-pronged approach to minimizing Microcap fraud: enforcement, inspections, investor education, and regulation. For more information about the SEC's response to Microcap fraud, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm.
The Commission previously has made several announcements concerning these matters. See Securities Exchange Act Rel. 42616 (April 4, 2000); Lit. Rel. 16343 (October 27, 1999); Lit. Rel. 15996 (December 9, 1998); Securities Exchange Act Rel. 40509 (September 30, 1998); Lit. Rel. 15906 (September 24, 1998); Lit. Rel. 14900 (September 24, 1998); Lit. Rel. 15888 (September 18, 1998); Lit. Rel. 15677 (March 19, 1998); Lit. Rel. 15617 (January 14, 1998); Lit. Rel. 15600 (December 22, 1997); Lit. Rel. 15571 (November 25, 1997); Lit. Rel. 15490 (September 12, 1997); Lit. Rel. 15286 (March 12, 1997); Lit. Rel. 15490 (January 31, 1997); Lit. Rel. 15185 (December 12, 1996); Lit. Rel. 15153 (November 7, 1996); Securities Exchange Act Rel. No. 33791 (October 7, 1996).